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Tata Capital > Blog > Loan for Business > The Pros and Cons of Business Loan Refinancing

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The Pros and Cons of Business Loan Refinancing

The Pros and Cons of Business Loan Refinancing

When Aqsa first dreamed of starting her own company, a business loangave wings to her dreams. Since then, five years have passed, and the company has been making steady profits. But the interest on her loan? It's still high!

Are you in the same boat as Aqsa? And still paying hefty interests? Well, lucky for you, you have the option of business loan refinancing! With refinancing, you can pay off your existing debt by getting a new loan at a lower interest rate.

While this is a viable option to reduce your debt burden, several factors play into refinancing a loan. So, should you transfer your loan? Let's explore the pros and cons of refinancing to help you decide.

Pros of refinancing

1. Locking a lower interest rate

With lower business loan interest rates, you will be able to save up in the long term. The EMIs won't be a burden either. The reduced monthly payments also mean that you will have more working capital at hand for other investments.

2. Survive a financial crunch

The need for capital is never as prominent as in a financial crisis. By refinancing your loan early in your tenure, you can ensure that you always have a steady supply of cash while still being able to make repayments easily. This will significantly contribute to the sustenance of your business.

3. Become debt-free faster

A long-term loan would mean that you have to pay a large sum of money as interest. If you can refinance your business loan at a time when interest rates are low, you can opt for a shorter term. This way, not only will you pay less interest but also pay off your loan faster.

Additional Read: A Guide to Refinancing a Small Business Loan

Cons of refinancing

1. Prepayment penalties

While it may be tempting to pay off your loan in the shortest amount of time possible, you must also consider the associated charges. After all, your lender will levy a prepayment penalty on you if you refinance the loan. If you're not careful while estimating the costs involved, it may not work to your advantage.

Instead, you might end up paying the sum of money you were hoping to save through refinancing as penalties and processing charges.

2. May not make a difference

Business refinancing is a great option to switch to a lower interest rate. However, sometimes a lower rate of interest may not make that much of a difference, especially if you are paying it through a long-term loan. Besides, the cost of application adds up, and a hard enquiry by your new lender may even affect your credit score negatively.

Additional Read:  What is Refinancing a Business Loan?

Over to you

Looking to refinance your loan? If so, turn to Tata Capital. You can fill out a quick and simple application to apply for the same. All you need to do is submit your KYC documents, bank statement and a proof of business. Our business loan eligibility criteria are also easy to meet, ensuring that you have a steady supply of credit whenever you want.

Refinance your business loan with Tata Capital so that you are always in control of your finances.

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