What is refinancing?

Loan refinancing is a convenient way to review your existing financial obligations and replace them with a new loan under more favorable terms. In other words, instead of your current loan or several credits, you choose a new financial obligation that better matches your current situation. The main benefit of refinancing is the ability to reduce your financial burden and manage your obligations more easily.

Refinancing is best carried out through major banks in Lithuania, as they ensure greater reliability, clearer terms, and stricter regulation. However, before choosing a specific offer, it is important to properly prepare for the refinancing process. The first step is to assess your financial situation and existing obligations. This will help you better understand what terms you can expect and which refinancing solution is truly beneficial for you.

In this article, you will find all the key information—what refinancing is, how it works, and where it is best to carry it out so that the decision is beneficial in the long term.

What does refinancing mean?

Refinancing is the process by which existing financial obligations are replaced with a new obligation that offers more favorable and flexible repayment terms. This concept is very common in the financial world, as sooner or later most businesses that borrow funds for growth encounter it. The new obligation typically comes with better conditions, more flexible terms, and is better suited to the current business situation. Refinancing occurs when it becomes clear that a business owner may not be able to meet existing obligations due to challenges such as delayed cash flows, declining sales, or increased production costs. In such cases, the loan is refinanced to quickly cover the existing obligation, avoid increased penalty interest, and extend the repayment period. Regardless of where the original loan was taken—from a bank, credit union, or crowdfunding platform—businesses choose refinancing if better borrowing conditions are available. This strategy helps reduce financial burden and manage risks more effectively.

Is credit refinancing different from loan refinancing?

In essence, credit refinancing and loan refinancing refer to the same process—replacing existing financial obligations with new financing under more favorable conditions. The main difference lies in terminology. For example, the term “credit refinancing” is usually used when talking about several obligations that are combined into one. Meanwhile, “loan refinancing” is typically associated with replacing one specific loan with a new one. In practice, however, both terms are often used as synonyms.

Benefits of refinancing

Understanding what refinancing is is not enough—it is also important to understand why it is worth refinancing your obligations. Companies have long been refinancing their liabilities because it provides many benefits to business operations. The main benefits include:

Lower interest rates

One of the key benefits of refinancing is lower interest rates. At the beginning of a business, owners often have no choice but to borrow funds at high cost due to lack of experience, short operating history, or lack of assets. However, after gaining more experience or completing part of a project and generating additional income, businesses can obtain loans under more attractive conditions. Therefore, they choose refinancing, which usually results in a cheaper loan due to lower interest rates. Refinancing helps reduce financial obligations and save money.

Loan consolidation

Another reason companies refinance is to simplify the management of their obligations. When a business has more than one loan, administration can become costly and time-consuming—tracking multiple deadlines, making several payments, and communicating with different lenders. Initially, having several loans may provide flexibility and additional funds, but over time it becomes inefficient. Refinancing allows combining multiple loans into one, making management simpler and more practical. It is also impractical to have multiple loans when payments are delayed, as this can lead to penalties and fines for failing to meet contractual obligations. For these reasons, it is often better to refinance several loans into one new loan.

Improved loan conditions

When businesses need funds, the cost is not always the main factor in choosing a lender. Key factors may include repayment terms, loan duration, speed of funding, deferrals, and other conditions. If these conditions become unfavorable or no longer match the current financial situation, refinancing becomes a way to adapt. For example, a business may want to reduce monthly payments due to temporary cash flow issues. If the current lender does not allow this, refinancing becomes a solution. Refinancing loans can also be used not only to cover existing obligations but also to borrow additional funds if needed.

Common refinancing conditions

Refinancing conditions depend on the loan type and lender. Typically, the following are evaluated:

• Interest rate
• Loan term
• Monthly payment
• Total repayment amount

In Lithuania, consumer loan refinancing interest rates usually range from 6% to 15% per year, and loan terms range from 1 to 7 years. After refinancing, monthly payments are usually reduced by 10–30%, depending on the new conditions and term.

Mortgage refinancing typically offers more favorable conditions due to lower risk. For example, a €100,000 mortgage with around 5% interest may be reduced to 3–4.5%, depending on market conditions and your financial situation. Monthly payments may decrease by tens of euros or more, especially if the loan term is adjusted.

Quick loan refinancing usually focuses on consolidating several obligations and reducing interest rates. For example, loans totaling €5,000 with 20–30% interest could be reduced to around 10–20%. Instead of multiple payments, only one payment is made, making financial management easier.

Where is it best to refinance loans?

When choosing where to refinance, it is important to consider the loan type.

• Mortgage refinancing is usually done through major banks such as Swedbank, SEB, Luminor, Artea, and Revolut.
• Consumer and quick loans can also be refinanced through smaller companies such as BigBank, which often offer simpler solutions.

Comparing banks:

• Swedbank – stable and clear conditions
• SEB – option for simplified refinancing with fewer fees
• Luminor – simple and fast process
• Artea – flexibility to adjust loan terms
• Revolut – fully digital process via app

How to choose the right refinancing provider?

Refinancing is a responsible financial decision that should be made after evaluating your needs and comparing offers. It is important to consider:

• Whether the provider operates legally and is regulated
• Their reliability and customer feedback
• Transparency of fees and communication
• Whether the offer matches your financial goals

You can check licensed providers on the Bank of Lithuania website. These institutions are supervised, which reduces risk and ensures safer processes.

It is also important to evaluate customer reviews—pay attention to feedback about the process, communication, and any unexpected fees.

How is refinancing used in real estate projects?

Refinancing is a common practice in real estate projects. It helps optimize financing at different stages of the project.

Projects usually start with one financing source (e.g., a bank loan), but as the project progresses and risk decreases, financing can be replaced with more favorable terms. This reduces costs, improves cash flow, and allows better project management.

Refinancing is often used when a project reaches certain milestones—such as obtaining permits, starting construction, or selling part of the property. At this stage, the project becomes less risky, allowing better financing conditions or attracting additional investment.

In addition to banks, alternative financing sources such as Profitus are increasingly used. These platforms allow refinancing through crowdfunding, providing more flexible and faster access to funds.

How to start refinancing?

Refinancing usually starts with evaluating your financial situation and comparing offers from different lenders.

Steps:

1. Assess your situation and how it has changed since taking the loan
2. Talk to your current lender about adjusting terms
3. If not successful, compare offers from other providers
4. Submit applications (often online)
5. Wait for offers
6. Choose the most suitable one

Most importantly, remember that refinancing is also a financial obligation—carefully evaluate all conditions and make a responsible and rational decision.