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LSDefine
Simple English definitions for legal terms
refunding
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A quick definition of refunding:
Refunding: Refunding is when you pay back money that you borrowed before you were supposed to. It's like getting a refund for something you bought, but instead of getting money back, you're paying back money you borrowed. This can help you save money by getting a better interest rate or by extending the time you have to pay back the loan.
A more thorough explanation:
Definition: Refunding is the process of refinancing a debt before it matures. It involves issuing new debt to pay off the old debt, usually at a lower interest rate.
Examples:
- A company has a bond that will mature in 10 years with an interest rate of 5%. However, interest rates have dropped, and the company can now issue new bonds at a lower rate of 3%. The company decides to issue new bonds to pay off the old ones, saving money on interest payments. This is an example of refunding.
- A city has a loan that it took out to build a new stadium. The loan has a high interest rate, and the city is struggling to make the payments. The city decides to issue new bonds at a lower interest rate to pay off the old loan. This is an example of refunding.
These examples illustrate how refunding can help organizations save money on interest payments by refinancing their debt at a lower rate. This can free up funds for other expenses or investments.