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How to Refinance a Personal Loan?
You have definitely heard about refinancing a mortgage or credit card debt with a personal loan. This borrowing option usually provides one of the lowest interest rates, which decreases the amount you owe and often makes your monthly payments more manageable.
Do you know that you can also replace your existing personal loan with a new one? Refinancing is an excellent idea if your credit score has improved, as you may be able to take out a new loan at a lower interest rate and longer loan term. Understanding how to refinance a personal loan and what benefits and drawbacks it brings can help you make more informed decisions.
5 Best Lenders to Refinance a Personal Loan
- Be at least 18 years old
- Prove your US citizenship or permanent residence
- Provide your bank account information and social security number
- Show your monthly income by providing pay stubs, tax forms, or bank statements
- Provide an active email address and phone number
- Optional fees (up to 6%)
- Low interest rates
- Co-applicants are allowed
- No prepayment penalties
- Flexible loan amounts
- Interest rate discounts are available
- Multiple repayment options
- No origination fee
- Good credit is required for better loan terms
- Hard credit check if you continue your application
- Late fees might apply
- No co-signer option available
- No physical branches
Applicants with good to excellent credit scores who want to consolidate debt, make major purchases, or cover their long-term needs.
- Be at least 18 years old
- Prove your US citizenship or permanent residence
- Provide your bank account information
- Show your monthly income by providing pay stubs, tax forms, or bank statements
- Provide an active email address and phone number
- Origination fees up to 12%
- $15 late fee
- $15 NSF fee
- Quick access to loan funds
- No prepayment penalties
- Flexible monthly payments
- Soft credit check when prequalifying
- Flexible loan amounts
- Origination fees up to 12%
- High maximum annual percentage rate
- Co-signers aren’t allowed
- Hard credit checks for final approval
- Limited repayment loan terms
Poor credit borrowers who can’t qualify for traditional personal loans
- Be a U.S. citizen, a permanent resident, or living in the U.S. on a valid visa
- Be at least 18 years old (19 in Alabama and some other states)
- Give a working email address
- Provide valid bank account details
- Confirm a sufficient monthly income to cover your loan payments
- Origination fees: 1.85% to 9.99%
- Late payment fees: $10
- Non-sufficient funds fees: $10 per payment returned
- No prepayment penalties
- Multiple rate discounts
- Next-day funding
- The due date may be changed
- Direct payments for debt consolidation
- APRs may be high
- Origination fees are charged
- Late fees may be applied
Fair-credit borrowers who need the money quickly
- Be at least 18 years old
- Prove your US citizenship or permanent residence
- Provide your bank account information
- Show your monthly income by providing pay stubs, tax forms, or bank statements
- Have fair credit (at least 640)
- Provide an active email address and phone number
- Origination fees of up to 9%
- $15 late fee
- $15 NSF fee
- Low annual percentage rate
- No prepayment penalties
- Wide range of available loan amounts
- Same-day funding under some circumstances
- Accessible for fair credit borrowers
- High origination fee (up to 9%)
- Hard credit checks when you select your loan to move forward
- No cosigners are allowed for joint loans
- It is not available in all states
- Limited repayment options set at either 36 or 60 months
Fair credit borrowers who need to cover various personal needs
- Be at least 18 years old
- Prove your US citizenship or permanent residence
- Provide your bank account information
- Show your monthly income by providing pay stubs, tax forms, or bank statements
- Have fair credit (at least 660)
- Provide an active email address and phone number
- Late fee of $39
- Long repayment periods
- Three options for repayment help
- High level of customer satisfaction
- No origination fees
- Free FICO score monitoring tools
- Competitive interest rates
- Charges a $39 penalty for late payments
- Strict eligibility requirements
- No co-borrower permitted
Borrowers with fair credit scores who want to consolidate debt, renovate home, or make big purchases.
What Is Personal Loan Refinancing?
Personal loan refinancing is replacing your current loan with a new one that usually has a lower interest rate, a more flexible repayment term, or a more manageable monthly payment. You can apply for a new loan either with your current lender or another one, and are only allowed to use the funds to repay your existing debt. Then, you should focus on paying off your new loan.
When Should You Refinance a Loan?
Personal loan refinancing is not always a necessary procedure. There are specific situations where replacing an existing loan with a new one can be beneficial.
When a Personal Loan Refinance is Not Worth It?
Although refinancing a personal loan can be beneficial, it does not mean you need to do it. Here are some cases where you should not take out a new loan to replace a current one:
- You will not get better terms. Refinancing a personal loan makes no sense if it does not provide you with lower interest charges or a more convenient loan term. So, analyze your current loan and compare its terms with those offered by other lenders.
- You are close to the end of your repayment timeline. If you have almost repaid your current personal loan, taking out a new one will just lead to the debt extension, and you will pay more in interest.
- You don’t owe much. You don’t need to refinance a personal loan when the amount you owe is really small. You will probably be charged an origination fee and other extra fees for a new loan in addition to an interest rate. This can make refinancing more costly.
Rates & Terms
Borrowing options for refinancing your personal loan typically cost between 5.99% and 35.99%. Some products offered to bad credit borrowers can come with APRs of over 200%. Before choosing the right product, make sure the lender can offer you a lower APR compared to that on your existing loan.
The repayment terms usually range from 12 to 84 months. By choosing the longer period compared to your remaining loan term, you can reduce your monthly payment amount. However, it will result in a higher total loan cost.
Representative Example
Suppose that you’re going to get $10,000 to refinance your personal loan. Here are several examples of how the interest rate and the repayment period can affect your loan cost:
| APR | Repayment Term | Monthly Payment | Total Interest Paid | Total Loan Cost |
|---|---|---|---|---|
| 8.99% | 12 months | $874.47 | $493.62 | $10,493.62 |
| 8.99% | 36 months | $317.95 | $1,446.23 | $11,446.23 |
| 12.4% | 12 months | $890.36 | $684.32 | $10,684.32 |
| 12.4% | 36 months | $334.06 | $2,026.05 | $12,026.05 |
| 18.5% | 12 months | $919.18 | $1,030.17 | $11,030.17 |
| 18.5% | 36 months | $364.04 | $3,105.34 | $13,105.34 |
The terms provided above may differ from the conditions offered to you by a particular lender. To figure out your specific loan cost, use our online loan calculator:
Loan calculator
ESTIMATED MONTHLY PAYMENT
TOTAL LOAN AMOUNT PAID
TOTAL INTEREST PAID
TOTAL COST OF LOAN
How to Refinance a Personal Loan?
Here are several step to take for a responsible personal loan refinancing:
Determine Your New Loan Amount
Decide how much you need to borrow. It is essential to consider factors like your outstanding loan balance, origination fees, and potential prepayment penalties on your existing loan, if any.
Check Your Credit Report And Credit Score
Checking your credit score will help you make a decision on whether you should take out a new loan. You can obtain personal loans at a lower interest rate only if your credit score has improved. Otherwise, the refinancing process may just become a waste of your time.
To evaluate your current situation, you can request a free copy of your credit report from three major credit agencies (Equifax, Experian, and TransUnion) via AnnualCreditReport.com.
Shop Around For A New Loan
Before taking out a new loan, compare all the available options. While there are many banks, credit unions, and online lenders offering personal loans, finding one with convenient monthly payments and reasonable interest and fees without hidden costs may be a difficult task. Prequalify from multiple loan providers and compare their terms. Some lenders will charge an origination fee and require other extra payments, while others don’t apply any additional costs.
Complete The Application
After comparing personal loans from different lenders and selecting a provider with the most suitable terms, you can start your application process. Submit the required documents and information (Social Security number, bank statements, pay stubs, tax returns, etc.), provide your personal and bank account details, and send the request.
Get Your Loan Funds
If a lender approves your request, you will likely get the money within 1-3 business days. Most online lenders will provide you with the funds on the same or the next business day. The money is usually transferred directly to your current lender but some loan providers may deposit money into your bank account.
Pay Off Your Original Loan
If a lender doesn’t make a direct transfer, you need to repay your existing loan on your own. To do this, contact your previous lender and discuss all the details with them. Once you pay off the original loan, ask the financial institution for documentation confirming this, as the loan may be shown as being paid in your credit report even 30-45 days after it is closed.
Begin Making Payments On Your New Loan
Start making payments for your refinance loan. It is essential to pay on time to avoid hurting your credit score. Set up autopay to protect yourself from missing a payment.
Advantages of Refinancing a Personal Loan
The most significant benefits you get if you replace your current loan with a new one include the following:
- Lower interest rate. If your credit has improved since taking a previous loan, you can get a new loan with lower interest.
- Extended repayment period. Extending loan terms is an excellent option for those facing difficulties with making monthly payments.
- Switching rates. Many borrowers struggle with unpredictable loan payments caused by variable interest rates. Refinancing allows you to switch to fixed ones.
- Faster loan payoff. Individuals often use personal loan refinancing to become debt-free faster. They get new loans with lower APRs and shorter repayment periods to repay the debt more quickly.
Disadvantages of Refinancing a Personal Loan
Personal loan refinance is not an option for everyone. It may come with the following pitfalls:
- Additional fees. When you take a new loan, you should be prepared for charges from your new lender. They can even make your refinancing unprofitable.
- Credit score impact. Personal loan refinancing usually negatively affects your credit report. Although the impact is small and temporary, it still exists.
- Research and application time. Researching lenders, comparing their terms, and completing application processes takes time. If your personal loan is close to the end, refinancing may be unnecessary.
Why Choose BadCredify
BadCredify is your trusted ally when it comes to choosing the right loan solution. We can help borrowers with any credit and financial situation find a suitable financing option that meets their unique needs. By filling out just one simple online form, you can access multiple offers from legitimate loan providers and compare their terms in minutes without affecting your credit score. We make the entire process fast and seamless and use innovative algorithms to ensure you will get the offers from those loan providers with the criteria you can meet.
Our experts care about your financial future and provide professional advice, independent lender reviews, and ultimate guides on personal finance, borrowing, and debt management to help anyone better navigate their finances.
FAQ
Can I renegotiate a personal loan instead of refinancing?
If you’re a borrower in good standing, your current lender may agree to loan modification. Financial institutions are not interested in losing their clients, so it is possible to get an extended repayment term or a lower interest rate instead of refinancing your loan.
Can refinancing hurt my credit score?
Yes, it could. Refinancing can hurt borrowers’ credit scores due to a hard credit check, but the dip is usually slight and does not last long. In most cases, your credit will bounce back within several months of on-time payments.
Can I refinance a personal loan?
Yes. You can get a new loan and use this money to return your existing debt, provided that your lender allows early loan repayment. Check the terms of your loan agreement and pay attention to the prepayment penalties, if any.
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