Can You Refinance a Personal Loan?

Posted by Frank Gogol

If you are one of the 21.1 million people in the U.S. who have an outstanding personal loan, you may be interested in learning how to get better terms, lower monthly payments, and more competitive interest rates.

Chances are, you took out at least some of these personal loans, like student loans, when your financial position was not great. A lack of financial stability or a bad credit score made you a bad prospect for lenders. You got stuck with high interest rates and monthly payments.

Now that your financial position is better, you should ask yourself can you refinance a personal loan you already have?

Refinancing Overview

As you get a job and have more financial security, you might find that you can get a better interest rate and loan terms than you could before. If you still have loans that are being paid off at high interest rates like student loans, you should consider refinancing these loans.

When you refinance a personal loan, you apply for a new loan and then use the funds you receive to pay off your old loan. Usually, the goal is reducing your monthly payments or lowering your interest rate. Then you will begin making payments on your new loan with a new interest rate and terms.

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How to Refinance a Personal Loan

The most important thing to do when refinancing a personal loan is research, research, research. You need to find a lender that will save you money, otherwise, you are just replacing one bad loan with another.

One valuable avenue of research is the process of pre-qualifying for a new personal loan with multiple lenders. This allows you to see the rates and terms you can get without affecting your credit score. Use this information to compare new loan offers with the terms of your existing loan.

Add up the new loan’s interest and fees and compare them to your existing loan to determine whether refinancing will lower your monthly payments or save you money in the long term.

Once you’ve decided on a new personal loan, check whether the lender will pay off your first loan or transfer the funds to your bank account. 

As soon as you’ve paid off your old personal loan, and started making payments toward the new loan, you have successfully completed the refinancing process!

Pros and Cons of Refinancing

Advantages of refinancing a personal loan

There are many advantages to refinancing a personal loan. If your credit, income or debt-to-income ratio has improved since you took out the original loan, you may be able to get a lower interest rate on the new loan.

If you can now afford a higher monthly payment, refinancing to a shorter-term loan will reduce overall interest costs and save you money.

You can also refinance to extend your repayment period. This will decrease your monthly payments and can help the loan repayment feel more manageable.

Refinancing can provide payment stability if you’re switching from a variable interest rate to a fixed interest rate.

Disadvantages of refinancing a personal loan

Before you just refinance your personal loan, make sure you properly consider the possible disadvantages of refinancing.

Sometimes refinancing a personal loan comes with an origination fee. This fee can be anywhere between 1% and 10% of the loan amount. Keep this in mind when doing the calculations about whether the refinanced loan will save you money in the long run.

Some loans also come with a prepayment penalty when you pay the balance off before the term ends.  Keep this in mind when doing the calculations about whether the refinanced loan will save you money in the long run.

If you are refinancing a loan over a longer repayment period, keep in mind this increases your total interest costs and might cost you money in the long run.

Finally, because applying for a refinancing loan counts as a new loan inquiry, it can lower your credit score, even if the impact is minimal and temporary.

When Refinancing a Personal Loan is a Good Idea

Do your research. Consider all of the hidden costs, the impact of a lower interest rate over the loan period, and how it will impact your monthly repayments.

If refinancing your loan will save you money, it almost always makes sense.

Some common situations in which people ask themselves can you refinance a personal loan include:

  • If your credit score has improved and you feel you can qualify for a lower interest rate.
  • If you find that having a variable interest rate makes planning your monthly payments difficult.
  • If your current loan has a balloon repayment.
  • If you have a decreased income and need lower monthly payments on your personal loan.
  • If you’d like to pay your loan off faster and a refinanced, short-term loan will give you a better deal while doing this.
  • If you can afford the origination, application, and prepayment fees (and if the refinancing still makes sense financially after factoring in the additional fees).

How to Refinance a Loan With Stilt

Stilt offers competitive refinancing offers. Especially if you do not have a social security number and are looking for a personal loan that does not require a cosigner.

The first important step when considering a personal refinance loan is the eligibility criteria. The minimum eligibility criteria to apply for a personal refinance loan with Stilt is you have to be physically present in the U.S. with a U.S. bank account in your name and a U.S. address. You can see Stilt’s full eligibility criteria here.

When comparing various refinancing options it’s important to consider any fees, rates, and repayment options to ensure you are choosing the loan that works best for your needs and actually benefits you in the long term. You can check out exactly how a Stilt refinancing loan will work here.

If you’re ready to get started you can complete and submit the loan application with necessary details about yourself and your existing loan. 

Conclusion

Can you refinance a personal loan? Yes, you can, and Stilt makes it easy to do so. 

As you get a job and have more financial security, you might find you can get a better interest rate and loan terms than you could before. If you still have loans that are being paid off at high-interest rates, you should consider refinancing these loans.

When you refinance a personal loan, you apply for a new loan and then use the funds you receive to pay off your old loan. Usually, the goal is reducing your monthly payments or lowering your interest rate. Then you will begin making payments on your new loan with a new interest rate and terms.

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