Loan redemption / Credit redemption

During loan exchange, the company replaces its existing bank loan with another bank loan in the hope of more favorable conditions.

By definition, the possibility of credit redemption arises for companies that already have some existing (valid and unexpired) loan. The terms and conditions applicable to the loan already taken out are recorded in the loan agreement. These terms and conditions will remain in effect for the entire term. 

It may happen that the market environment has changed in the time since the loan was taken, or the needs and possibilities of the business have changed. For example, the company took out a long-term loan at a fixed (interest) rate, but in the meantime the interest rate decreased significantly. The motivation for taking out a loan is always the fact that the current credit conditions are more favorable for the company than those that apply to its existing credit.

For all businesses dealing with credit, it is worth monitoring the current borrowing opportunities from time to time. It is advisable to think about whether the changed circumstances are sufficiently favorable for the company to decide to take out a loan.

It is important to know that loan redemption is often a possible the purpose of the credit, but not all credit scheme allow it. So, seeing the more favorable conditions, it is definitely worth checking first whether the new credit scheme selected for the exchange allows the financing of the loan exchange. 

On the other hand, it is important to know that loan replacement is accompanied by the same loan application process as taking out a new loan, with all its administrative burdens and costs. It is therefore important to consider whether, overall, it is really worth it for the company to start the loan exchange.

If the answer to the question is yes, then you should first inquire with the bank providing the existing loan. It may happen that the bank providing the original loan makes the conditions of the original loan more favorable upon hearing the demand for loan replacement. This consultation can be followed by visiting credit institutions that are less familiar with the business, and then choosing the most favorable offer.