Becoming strategic about taking charge of your finances? You might want to look at ways to refinance personal loan debt.
If you have a high interest rate or your monthly payments aren’t ideal for your current budget, remember you might not be stuck with your original loan. You could refinance personal loan debt to find a better deal.
Refinancing might sound complicated, or you might not be sure if the option is right for you. This article will help you learn more about how to refinance a personal loan and the scenarios that might help you get out of debt faster.
Can you refinance your personal loan?
The short answer: Yes, it’s possible.
When you refinance your personal loan, you usually work with a new lender to borrow money to cover the amount you currently owe. You use this money to pay back your existing loan and then start repaying your new debt. The goal is to have the new loan’s interest rate or terms be more favorable for you.
Sometimes, you can refinance your loan with your current lender. If your credit or income has improved since you took out your personal loan, your lender might be willing to offer you a lower interest rate.
A lower rate potentially could save you thousands of dollars over the course of your loan. This could help you pay your debt back faster or start an emergency fund if you want to create a cushion in your savings.
3 reasons to refinance your personal loan
There are a few key scenarios in which it’s savvy to refinance personal loan debt.
1. Your credit score has improved
If you had bad credit when you took out a personal loan, you might have a high interest rate. However, if your credit score has improved since then — which could happen if you made loan payments on time — you might be able to qualify for a lower rate on a new loan.
A credit score below 580 is considered poor, while a score above 670 is considered good. You can check your credit score for free to see how much it has changed since you borrowed money and figure out if refinancing your personal loan can save you money.
2. You found a better deal with another lender
Even if your credit score didn’t increase significantly since you took out your original loan, you might be able to find a better deal with another company. Online lending has become competitive. Some lenders offer a variety of deals aside from lower interest rates in a quest for new customers.
SoFi, for example, offers a 0.25% discount on the interest rate if you sign up to make automatic payments on a loan. The company also offers an unemployment protection program, which could suspend monthly payments in case you lose your job. Benefits like these might make the loan worth refinancing even if the move doesn’t offer significant savings.
3. You need lower payments
If your monthly loan payments are unmanageable, you might be able to negotiate different terms on a loan with a new lender, such as lengthening the repayment period. It would take you longer to pay back the amount borrowed and cost more in interest charges over the life of the loan, but you’d likely have a smaller bill each month.
If you miss payments often because your monthly expenses are too high, lowering your personal loan bill could help in the short term.
What to consider before you refinance personal loan debt
Refinancing your personal loan isn’t beneficial in all cases. Here’s what to be aware of as you research lenders and their options.
1. You might not get the advertised interest rate
It’s common for lenders to advertise their lowest interest rates. The problem? Those rates usually are reserved for borrowers with excellent credit and good incomes. To get a realistic estimate of the rates you might qualify for, comparison shop with several lenders.
Online lenders such as SoFi, Earnest, and Avant do soft credit pulls to estimate your interest rate. These checks don’t impact your credit score and the rate estimates can be useful while comparing different offers.
Our personal loan marketplace can help you quickly compare loans and filter lenders by your top criterion.
2. There could be fees to refinance
Some lenders charge high fees on new loans. LendingClub, for example, has an origination fee of 1% to 6% of the loan amount. It’s deducted upfront, so the money you receive will be less than the amount you are approved for. Also, LendingClub adds the origination fee to your estimated APR, which can raise your final interest rate significantly.
Factor the fee and its impact on the APR into your calculations as you decide whether refinancing could be beneficial. Or, look for lenders that don’t charge origination fees.
3. You might pay more over the life of the loan
If you extend the length of the repayment period of your loan, you could lower your monthly payment amount. But you might also pay more in interest charges overall, especially if your rate doesn’t go down.
This option might work if you’re struggling to pay your monthly bills, but the additional interest costs should be considered before you sign on the dotted line for your new loan.
How to refinance personal loan debt
Here’s the process you could follow if you want to refinance your personal loan.
1. Check and improve your credit score
Once you know your credit score, you’ll have a better idea of what loans you could qualify for.
2. Shop for the best deal and apply for a new loan
As you research different lenders, create a list comparing the estimated interest rates, monthly payments, and minimum credit score you’d need to qualify with each company. Other things to consider are the length of the loan and any extra fees. We’ve compiled a list of some of the most popular lenders and their rates if you’re looking for a good place to start.
Instead of doing the calculations on your own, save time by using our personal loan calculator to compare costs.
Once you’ve decided on a lender, submit an application online or in person. The lender likely will ask for your financial information such as pay stubs or your most recent W-2 forms.
3. Pay your old loan and make sure it’s closed
Once the funds from your new loan come through, immediately pay off your original loan. Some refinancing lenders will pay your old loan off directly, making the process seamless.
Make sure you receive documentation from your original lender proving the debt was fully paid. You also can check your credit report to confirm that the old loan was closed correctly.
Interested in a personal loan?Here are the top personal loan lenders of 2018!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.16% to 35.89%. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at time of application. The origination fee ranges from 1% to 6% and the average origination fee is 5.49% as of Q1 2017. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months or longer.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|7.73% – 29.99%||$1,000 - $50,000||Visit Upstart|
|6.26% – 14.87%1||$5,000 - $100,000||Visit SoFi|
|6.99% – 35.97%*||$1,000 - $50,000||Visit Upgrade|
|8.00% – 25.00%2||$5,000 - $35,000||Visit Payoff|
|4.99% – 29.99%3||$10,000 - $35,000||Visit FreedomPlus|
|5.99% – 18.99%4||$5,000 - $50,000||Visit Citizens|
|15.49% – 34.49%5||$2,000 - $25,000||Visit LendingPoint|
|6.16% – 35.89%6||$1,000 - $40,000||Visit LendingClub|
|6.99% – 18.24%7||$5,000 - $75,000||Visit Earnest|
|9.95% – 35.99%8||$2,000 - $35,000||Visit Avant|