Can You Refinance a Personal Loan?

If you’ve taken out a loan at some point in the past, but your repayment efforts haven’t exactly gone as planned, you’re likely still paying down the original amount while more interest gets tacked on each month. This is how many Americans wind up in debt for far longer than they envisioned. So what are borrowers with an unmanageable amount of debt supposed to do?

Fortunately, borrowers who have struggled to pay down their debt in a timely manner do have options when it comes to finding financial freedom. In fact, many lending institutions make it easy for individuals in debt to refinance a personal loan in order to secure better terms. But exactly what does refinancing a personal loan mean, and can applicants with bad credit take advantage of such an opportunity? You’ll find the answers to those questions — along with many others — in this in-depth look at refinancing personal loans.

What Does It Mean to Refinance a Personal Loan?

If you’re relatively new to the realm of personal finance, you might be wondering what exactly refinancing a loan entails. Essentially, refinancing a personal means that you’re transferring an existing debt from one institution to another. Generally, this is done by applying for a loan with a different new lender, then using your newly available funds to pay off the balance of your outstanding debt. Why would someone want to do this? Usually, people refinance personal loans to make their debt easier to manage or simply to save money in the long run. Here’s how it works.

How to Refinance a Personal Loan

When you’re ready to adjust the terms of your debt, here’s what you need to know about how to refinance a personal loan

  1. Try to Pre-qualify — Many modern lenders can now instantly let you instantly know what the terms of your refinanced loan would look like, even without requiring a “hard inquiry” of your credit report, which could adversely affect your FICO score.
  2. Calculate Costs — Open up a new spreadsheet and launch your calculator app for this next step, when you’ll account for all of the interest rates, origination fees, and other prepayment penalties charged by each of the lender’s you’re looking.
  3. Pay Off the Old Balance — Apply for a loan from the most appealing lender and, if the financial institution in question doesn’t automatically transfer the funds to the original issuer of the loan, make sure to do that yourself in a timely manner.
  4. Ensure the Original Balance is Paid Off — Don’t make the mistake of assuming that your transfer went through and your previous debt is resolved. Verify that the payment you made covers the entirety of your balance, and close the account if need be.
  5. Setup autopayment — Once your new loan is all set and good to go, sign up for autopayment so you never have to worry about a missed due-date wreaking havoc on your credit report.

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How Many Times Can You Refinance a Personal Loan?

Thanks to the multitude of lending institutions crowding today’s marketplace, it’s certainly possible for well-qualified borrowers to refinance a personal loan several times. Depending upon your cash flow and the specific nature of your financial situation, this approach might make sound sense, however, in general, the longer the amount of time you spend paying a debt, the more interest you’ll pay in the long run.

Does Refinancing a Personal Loan Hurt Your Credit?

This is a tricky question, and the answer will likely vary based upon your specific circumstances. In general, refinancing a personal loan might harm your credit score in the short term because it lowers the average age of your credit accounts. Also, depending upon how quickly transactions appear on your credit report, on paper it could look like you owe twice as much as you actually do. On the other hand, however, getting a new loan can strengthen your credit mix, which, similar to on-time payments, will increase your score in the long run.

When Refinancing Is a Good Idea

When does it make sense to refinance a loan? Ask yourself these questions before you start applying to lending institutions.

  • How’s your credit? If you’ve got a better credit now than you did when you took our your initial loan, you’ll likely qualify for far better terms. If your credit is worse, however, you might be better off sticking with your current lender.
  • Is the interest rate on your loan ridiculously high? If you’re paying an interest rate that’s well above average, refinancing is an ideal way to save some scratch each month.
  • Do you want to pay more or less money each month? Although you might be able to pay more than the minimum amount due for your current loan, some lenders will penalize you for prepayment. Refinancing with a more flexible lender could be just the solution you seek.

Lenders That Allow Refinancing

While many major lenders offer refinancing options, these four institutions are among our favorite.

Lender APR
Best Egg 5.99% – 29.99%
LightStream 6.14% – 15.49% (with AutoPay)
SoFi 5.99% – 16.49% (with AutoPay)
Upgrade 7.99% – 35.89%
Click to compare estimated rates on PrimeRates.

Pros and Cons of Refinancing

To help you decide if this course of action is indeed right for you, here’s a quick summary of the pros and cons of refinancing a personal loan.

Pros: You could qualify for a lower APR, a more manageable repayment period, and payments that make the most of your budget.

Cons: The longer you carry debt, the greater your costs will be; some lenders charge origination or transfer fees; and depending on the lender, there might be a penalty for prepayment.


If you’ve been wondering, “Can I refinance a personal loan,” it should be clear by now that, yes, you certainly can. However, depending upon your unique credit factors, your options might be limited.

Not all loans are created equal, and not all institutions have borrowers’ best interests in mind. So if you’re considering refinancing a personal loan with, do your homework and choose a lender you can trust.

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