Editor's choice: Upstart personal loans
- Work and education get you better rates
- Fair credit OK
- No prepayment penalty
Finder is committed to editorial independence. While we receive compensation when you click links to partners, they do not influence our content.
If you’re overwhelmed with how much your loan is costing you each month — or you’ve found a tempting deal to lower overall interest or extend repayment terms — refinancing could help you better manage your debt. But before you jump in, you’ll need to understand how it works, the costs associated with it and if it will actually save you money.
Refinancing a personal loan works much like refinancing a mortgage: You apply for a loan to cover the amount remaining on your current loan. Once accepted, you can use the funds from the new loan to pay off your old one. When refinancing, you’ll still carry the same amount of debt, but you could save money under better terms, a reduced interest rate or lower fees.
The value of refinancing depends on your current financial situation and terms of your loan. It’s important to consider what your current loan is costing you and compare that to what the new loan would cost. Don’t forget any one-time fees the lender may charge for setting up the loan.
You could also evaluate any specific features of the loan that you find important. For example, if you’re refinancing from a fixed rate loan to a variable rate loan, you may save money as long as the variable rate lasts. But these rates are variable for a reason: They can go up, leaving you to wonder whether you’d have been better off staying with your first loan. As another example, you may be used to making additional payments on your current loan to pay it back sooner, but your new lender may not offer this option.
In short, when determining the value of refinancing, take all aspects of both loans into consideration before signing a contract.
When you’re ready to refinance, follow these five steps to simplify the process.
Before you drop into a new loan contract, take the time to review lenders against your current one. Although some might offer lower rates or slightly different terms, there may be hidden fees that add to the cost of your loan, making it harder to pay back. You should also see if your lender offers a refinancing option — if you’re happy, this could be a good way to get a better interest rate without having to spend time applying elsewhere.
Your loan contract should have stated how much you’ll end up paying if you stick it out through the entire loan term. Use a personal loan calculator to see how much a new loan could potentially cost you before applying. Having an idea of your credit score and the types of fees the lender charges will also benefit you.
Check for one-time fees, like origination fees, that could set you back a few hundred dollars. Some lenders also charge early repayment fees, which can put a considerable dent in the savings you could make from switching. Be sure your current loan doesn’t have one. If it does, confirm that the savings on interest with your new loan are more than the prepayment penalty fee for your old loan.
Once you’ve found a lender or two that may be right for your refinancing needs, submit an application. You’ll need to provide your lender with documentation that confirms your identity, employment and income. You may also be required to mark your loan purpose as refinancing or consolidating.
Many lenders have a preapproval process that allows you to see your potential rates before they check your credit. See if your lender offers this. If not, you may see your score go down a few points, even if you aren’t approved.
If you’re approved, your lender will likely deposit your loan funds into your bank account. From there, you’ll need to transfer the funds into the personal loan account you’re looking to pay off. Contact your lender beforehand to get the full payoff amount — you may need to pay a closing fee that adds a few hundred dollars to your final balance.
Some lenders will transfer the money directly to your old account and pay if off for you. In this case, you’ll just have to confirm that the transaction went through.
Whether you pay your old lender directly or your new lender does it for you, you’ll need to make sure the account is closed. Make sure you receive a confirmation email or letter, and don’t be afraid to contact your lender if the payoff hasn’t cleared within a few days. You can also check your credit report — it should be recorded as closed.
There are quite a few scenarios where refinancing your old loan makes the most sense.
Like the lender you’re working with? Another way to get better rates and terms is to renegotiate your personal loan with your current lender.
Refinancing your personal loan can help you save from month-to-month or overall. It can take some time to find the right lender and compare your options, but once you do, you can start on the process of seeing if you can get a better rate elsewhere.
And if you’re not sure where to start, you can browse our personal loans guide to see what other types of deals you might be eligible for.
Shopify merchants may be able to get funding without a credit check.
You only have until the end of March to get your next application in.
President-elect Joe Biden plans to extend the pause on federal student loan payments and interest past January 31st — and may cancel some debt.
Smart strategies that homeowners can use to get rid of Private Mortgage Insurance (PMI).
A new change to the tax code quietly went into effect on January 1, lowering the minimum interest rate for permanent life insurance policies.
First Draw loans are now available through nonprofit lenders, with Second Draw loans following shortly behind.
We take a look at national home loan data & trends and speculate where the mortgage market is heading.
A permanent life insurance policy’s cash value can be used as a retirement income supplement, though using it reduces your policy’s death benefit.
You need to be a member to access this credit union’s high interest rate options.
A refinished basement and rising home prices in their area set them up for success.
finder.com is an independent comparison platform and information service that aims to provide you with the tools you need to make better decisions. While we are independent, the offers that appear on this site are from companies from which finder.com receives compensation. We may receive compensation from our partners for placement of their products or services. We may also receive compensation if you click on certain links posted on our site. While compensation arrangements may affect the order, position or placement of product information, it doesn't influence our assessment of those products. Please don't interpret the order in which products appear on our Site as any endorsement or recommendation from us. finder.com compares a wide range of products, providers and services but we don't provide information on all available products, providers or services. Please appreciate that there may be other options available to you than the products, providers or services covered by our service.