What is refinancing and how does it work?

Refinancing is the process of replacing an existing loan with a new loan that has better terms or features, such as a lower interest rate, a different repayment term, or more favorable repayment options. The idea is to improve the overall financial situation by saving money on interest payments or reducing monthly payments, among other things.

When you refinance a loan, you typically apply for a new loan with a different lender or the same lender that issued the original loan. The new loan pays off the existing loan, and you begin making payments on the new loan according to the new terms and conditions. Refinancing can be done for various types of loans, such as mortgages, auto loans, student loans, and personal loans.