Suppose you’ve already taken out a personal loan, but now you need more money. Or maybe you’re finding that the payments are too high for you to manage comfortably. We’ve got good news: Refinancing your current loan may help.
If you want to learn how to refinance your personal loan, you’re in the right place. We’ll explain the process step-by-step.
Here’s what we’re going to cover:
- What is personal loan refinancing?
- Should I refinance my personal loan?
- How do I refinance a personal loan?
- Oportun: Affordable personal loans for the people who need them most
- When you refinance a personal loan, you replace your existing loan with a new one. The balance of your existing loan will be paid off and you can use the rest of the money (if any) for whatever you need.
- By refinancing your personal loan, you may be able to get a lower interest rate, reduce your loan payments, pay off your loan sooner, or even get more money. But you may owe prepayment penalties and other fees. You may also pay interest over a longer period of time or at a higher rate and the overall cost of your loan may be higher.
- The process for refinancing a personal loan is very similar to the process for applying for a loan. The key is choosing a lender who will offer you a better loan agreement.
What is personal loan refinancing?
Personal loan refinancing is the process of replacing your existing loan with a new loan. The balance of your existing loan will be paid off and you can use the rest of the money (if any) for whatever you need.
Why would you want to refinance? Because the new loan comes with a different set of terms that may be better for you. You might be able to get a lower interest rate, reduce your loan payments, pay off your loan sooner, or even get more money.
This new loan agreement is based on your current financial situation. If your finances have improved since you took out your existing loan, you may now qualify for a better interest rate or higher loan amount.
Should I refinance my personal loan?
Before you take any other action, it’s important to decide if refinancing is the right choice for you. Will you get the funds you need to refinance your loan? Will you be able to get payments that fit your budget better? Will the new agreement let you pay off your loan faster? How much will you owe in prepayment penalties and other fees? Will your total interest costs be higher?
There are both advantages and disadvantages to refinancing. To help you make a decision, we’ve written an article called Benefits and drawbacks of refinancing a personal loan that looks at this subject in detail. You’ll want to read it carefully and think about what each possible outcome means for you.
For example, a shorter repayment term will let you get out of debt sooner, but your individual payments will be higher. A longer repayment term may offer you smaller payments, but you could end up owing more money in interest.
It’s important to consider all the conditions of a new loan agreement before reaching a decision. If refinancing will save you money, it’s probably worth doing.
How do I refinance a personal loan?
Suppose you’ve looked closely at refinancing and you understand what the options would mean for you. You’ve decided it’s a good choice, and now you’re ready to go ahead with the refinancing process. Where do you start?
Fortunately, the steps involved in refinancing your personal loan are simple.
Review your credit score
It helps to know what your credit score is before you apply for refinancing. If your credit score has improved since you took out your current loan, that means it’s a good time to start the refinancing process.
If your credit score has gone down, you may want to take steps to improve it before you apply for refinancing. A lower credit score means you will probably not be able to get a better agreement by refinancing.
Compare offers from different lenders
Finding the right lender is a key part of the refinancing process. In some cases, your current lender may be willing to give you better loan terms to keep you as a customer. But it’s still a good idea to check what else is available. Shop around and see what other lenders have to offer. Also, some lenders may not offer to refinance a loan from another lender.
As you look at refinancing offers, you’ll want to compare these things:
- Interest rates
- Loan amounts
- Repayment terms
- Payment amounts
- Automatic payment services
This is the time to call lenders and ask questions. Are they offering a lower interest rate than what you’re currently paying? Can you get a longer repayment term that will reduce your individual payments? What additional fees will they charge you?
The answers to these questions will help you decide which lender you should choose.
If you can’t find a lender who will offer you a better loan agreement, refinancing won’t help you.
Apply to the lender you’ve chosen
Once you’ve done your research, you’ll know which lender can offer you the best deal. Now you have to complete the application for personal loan refinancing.
When you apply for refinancing, most lenders will ask for these documents:
- A government-issued ID or your Social Security number
- Proof of address (a utility bill or an insurance statement addressed to you at home)
- Proof of income (a pay stub or your W-2 form)
- Contact information for your employer
- A list of your regular monthly payments
Review your new loan agreement
If your refinancing application gets approved, the next step is to review the new loan agreement. Read the whole agreement carefully. Be sure to ask any questions you have, just as you did when you applied for your current loan. Don’t be afraid to speak up. It’s important to understand exactly what you’re agreeing to.
If you’re happy with the loan agreement, work with your lender to finalize the loan and sign the contract. After that, you’ll start making payments on your new loan, based on the new due date and minimum payment.
Make sure your previous loan has been paid in full
One last thing: It’s important to check that your old loan has been paid off. Your new lender may have paid it off for you, or you may need to do it yourself. Give your old lender a call to confirm that the loan you had with them has been closed out. If it hasn’t, ask what steps you need to take to get this done.
Oportun: Affordable personal loans for the hardworking people who need them most
If you’d like more favorable conditions on your personal loan, refinancing may be the answer. It’s important to do your research and find a lender who will offer you a better loan agreement than the one you already have.
If you have an existing loan with Oportun, you may be able to refinance your loan. At Oportun, we offer affordable personal loans with low interest rates, budget-friendly payments, and flexible payment schedules. We’re here to help hardworking people like you reach your financial goals.
See if you prequalify for personal loan refinancing with us today.
Consumer Financial Protection Bureau. What’s a credit inquiry?
The information in this site, including any third-party content and opinions, is for educational purposes only and should not be relied upon as legal, tax, or financial advice or to indicate the availability or suitability of any Oportun product or service to your unique circumstances. Contact your independent financial advisor for advice on your personal situation.