How to Refinance a Personal Loan and Why You Should
Have you taken a personal loan in the past without doing enough market research? Is your interest rate through the roof? Do you wish you could turn back the clock and opt for a personal loan at a better rate?
While what’s done is done, that doesn’t mean you can’t make better decisions moving forward. If the person described above sounds remarkably like you, refinance your personal loan just might be what you’re looking for.
Personal loan refinancing is an effective way to pay off one or more personal loan accounts with a new loan with a better rate of interest. A better interest rate leads to a lower monthly payment, which will allow you to save a considerable amount of money in the long run.
Can You Refinance a Personal Loan?
Refinancing options are available for a wide variety of loan types, including personal loans. If you have a good credit history and a reliable source of income, that should be enough for the banks to grant you personal loan refinancing.
Is it Good to Refinance?
Whether refinancing will be a good decision or not largely depends on personal circumstances. It may not always be a smart financial move, but there are situations where it makes a lot of sense.
For example, if interest rates have declined or there is a rise in your monthly income since you took out your personal loan, then it’s a good idea to go for refinancing. If your credit score has improved in recently, then you will be in a better position to get a better interest rate, too.
On the downside, refinancing can attract additional processing fees and prepayment penalties, which can add to your existing debt. It can also extend the debt cycle – if you are trying to lower the monthly payment amount by committing to a longer repayment schedule. In cases like this, it may not be a good idea to go for refinancing.
Whether you are looking to lower your interest rate, shorten the repayment tenure, or both, make sure that the interest savings always exceed the additional costs incurred while refinancing – including any applicable origination fees and prepayment penalty.
Does Refinancing a Personal Loan Hurt Your Credit Score?
Any new loan can potentially affect your credit score and refinancing is no exception. When you apply for a new refinancing loan, a new hard inquiry will get added up to your credit history, which can lower your credit score by a few points.
Refinancing can hurt your credit score in the short term, but once you have successfully paid off the current debt, your credit score will improve gradually.
When you are getting a better deal on interest rates and repayment duration, your financial situation is likely to improve in the long run. So, the long-term benefits far outweigh the short-term negative effects.
How to Refinance a Personal Loan with Stilt?
Refinancing your personal loan with Stilt is easy. The simple online application process makes it convenient for the applicants.
To apply for a personal loan refinancing with Stilt, first, you need to create a new customer account on the Stilt website. Then you need to fill out an online application form and submit the same along with the required documents.
Stilt will validate the supplied information including your credit score (with a soft pull for verification purposes) and source of income. If you happen to meet the eligibility criteria, you will receive a decision within one business day.
If you are approved for a loan, you will be asked to upload some additional documentation and to sign a promissory note. Once all of this is complete, your funds will be disbursed.
All in all, it takes around 3-5 days for the funds to reflect on your bank account – if everything goes smoothly.
5 Questions to Ask Before Refinancing Your Personal Loan
Is refinancing the right option for your current financial situation? Let’s find out five important factors that you must consider before availing personal loan refinancing.
What’s Your Main Goal with Refinancing?
Whether it’s for getting a better interest rate, reducing monthly payments or shortening the loan term, you must have specific financial objectives for refinancing your personal loan. It’s important to have a clear idea about what you are trying to achieve through refinancing.
What Kind of Interest Rate Can I Get?
The most important factor worth considering is the interest rate. There is no point in refinancing if your current interest rate is better than what the refinancing is offering.
You should target an interest rate that could lead to significant saving after adjusting for any applicable processing fee and prepayment penalty. For the best result, it is highly recommended to compare the offers from multiple lenders and go for the one that gives you the lowest possible rate of interest.
How Much Can I Afford to Pay Each Month?
Before signing on the dotted line, give it a hard thought whether you could afford the monthly installments. Failing to make the monthly payments on time can adversely affect your credit score and lead you to an ever-mounting debt trap.
Is my Credit Score Good Enough to Refinance?
Your credit history is a key factor for the lenders to either approve or deny your application for a refinancing loan. Without a good credit score, your application is likely to get rejected by the lending agency. So before applying for refinancing, take adequate measures to improve your credit history.
How Does the Lender’s Customer Support Rate?
You may have to deal with the customer support team quite a lot for pre/post-processing support. So make sure to check out relevant forums and community boards to know what’s there in store for you when it comes to interacting with the customer care executives. Opting for a financial service provider with a solid customer support reputation is likely to make the overall experience more satisfying.
Refinancing your personal loan can be a good option to avail better interest rate and lower EMI. While it may take a toll on your immediate credit score, there are a number of long-term benefits that make it a viable alternative. Maintaining a decent credit score can be the key to getting your refinancing loan approved. It’s important to do your research and shop around to ensure that you are making a decent saving by taking the refinancing route.