Refinancing
What is Refinancing?
In GONDI, refinancing allows a lender to take over an existing loan by reducing its APR by at least 5%, automatically improving the loan terms for the borrower without requiring their acceptance (as it's strictly a better loan).
For a step-by-step guide on how to refinance loans, visit How to Refinance a Loan
How Does it Work?
Refinances are initiated by a lender and can occur while a loan is outstanding and not locked (see Refinancing Lock-ups). The lender can also increase the loan's principal, provided the APR is lowered enough to reduce the daily interest paid by the borrower. If refinancing results in a larger principal, the net increase is transferred to the borrower's wallet.
During refinancing, the new lender transfers both the loan's principal amount and the accrued interest to the original lender. Refinancing cannot shorten a loan's due date or increase the APR. Any change that does not lower the APR must be made via Renegotiations, which require the borrower's acceptance in order to be effective.
Loan refinancing requires a minimum 5% APR decrease.
The minimum required improvement for the principal amount is 5%. However, to extend a loan's due date, the minimum improvement needed is 10% of the remaining loan duration, rounded up to the nearest whole day.
Requirements
In GONDI V3, loan tranches can only be refinanced in full. For example, if a loan has a 5 WETH senior tranche and a 5 WETH junior tranche, lenders can refinance either of the 5 WETH tranches or the entire loan.
The minimum required improvement for the principal amount is 5%. However, to extend a loan's due date, the minimum improvement needed is 10% of the remaining loan duration, rounded up to the nearest whole day.
Loans originated on GONDI V1 and GONDI V2 support partial refinances.
Refinancing Lock-ups
A loan can be refinanced multiple times, with each new lender required to transfer the interest accumulated since its inception to the previous lender. Loans are locked from refinancing during the initial 5% and the last 10% of their duration. Each time a loan is refinanced, the lock-up period is reinstated for 5% of the remaining duration.
Refinancing Example
Alice's loan offer is accepted by Bob (borrower) with the following terms on April 1st:
Principal: 10.00 WETH
APR: 20%
Due date: April 30th (30 days duration)
On April 10th, Charly refinances the loan by lowering its APR:
Principal: 10 WETH
APR: 20% → 14%
Due date: April 30th (20 days remaining)
To refinance, Charly must transfer Alice the principal and the accrued interest. Alice accrued 0.0548 WETH over 10 days. Bob does not need to take any action as the APR has been reduced (a strictly better change).
On April 20th, Bob decides to repay the loan, which accrued at 20% APR for 10 days and 14% APR for another 10 days. Bob owes 10 WETH for the principal and 0.0931 WETH in interest (0.0548 + 0.0383 ).
Repayment distribution:
Total interest paid by Bob: 0.0931 WETH
Interest earned by Charly: 0.0383 WETH (10 days at 14% APR)
Interest earned by Alice: 0.0548 WETH (10 days at 20% APR)
Note: All calculations are rounded to three decimal places in the above example.
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