Financial Advice

How to Refinance a Personal Loan

how to refinance a personal loan

A personal loan is a flexible tool for helping you consolidate debt or pay for a variety of expenses. Also known as signature loans, personal loans are not secured by property or other collateral. A personal loan is an attractive option for borrowers who might not have the equity for other types of loans.

Your creditworthiness will determine whether you qualify for a personal loan, how much you can borrow and at what rate. Because personal loans can be a riskier investment for lenders, they often have higher interest rates. Over time, however, as you build your credit, you can learn how to refinance a personal loan for a lower rate.

Keep Reading: How to Compare Personal Loan Rates

How to Refinance Your Personal Loan in 5 Steps

1. Review Your Finances

Whether you want to get a lower interest rate, extend your term or access additional cash, you can use your credit score and payment history to leverage a personal loan refinance. If you have been making on-time payments to your personal loan, your credit score might have improved since you took out the original loan. Your lender will also review your payment history when deciding whether to approve you for a refinance.

“Before making a decision on whether or not to refinance a personal loan, borrowers should first do their homework to see if it makes sense. In many cases, principal is reduced, rates can be lowered and terms can be shortened, said Todd Nelson, the business development officer at LightStream, the online lending division of SunTrust Bank.

Although refinancing can also help you reduce monthly payments by extending your term, you are liable to pay more in interest over time. Generally, the best way to lower monthly payments is to reduce your loan’s APR.

2. Contact Your Lender and Competitors

When you are ready to refinance your personal loan, get in touch with your current lender. Let them know you want to refinance and give them an opportunity to keep your business. If your lender offers unattractive terms, reach out to other banks or credit unions. Credit unions, which are member-owned nonprofits, tend to offer competitive rates.

In general, payday loans are risky investments with high interest rates. Although payday loans might be easier to obtain for borrowers with bad credit, they can cost much more over time. You also want to look for fixed-rate loans, which keep your payments predictable through the life of the loan. Interest charged on variable-rate loans can swing high and low, causing financial uncertainty for borrowers on tight budgets.

3. Consider Online Banks and Peer-to-Peer Lending

Online banks generally offer competitive rates because they have lower overhead costs. Brick-and-mortar banks need to accommodate for the cost of maintaining branches and paying tellers. Online banks are as secure as traditional banks but might not provide the personal touch some borrowers crave when taking out a loan.

You can also consider peer-to-peer (P2P) lending, which lets borrowers get loans from other individuals. Investors join P2P lending groups, screen applicants and buy into loans to generate income off interest generated by borrowers.

4. Apply With a Personal Loan Lender

Once you have found a lender you are comfortable refinancing with, check your credit report for any errors. Federal law entitles you to a free credit report every 12 months. Your lender will review your report. Major lenders, like Wells Fargo, will provide a decision for you within minutes, with funds available that same day.

Your lenders might also want to know how much money you make, how much you pay for rent or your mortgage, and any monthly financial obligations. If you apply for refinancing in person, ask your lender if there is an application fee. You will also want to know:

  • Your repayment period
  • If there are prepayment penalties
  • Limitations on how you can use your money
  • If there are hidden fees

5. Sign Off on Your Personal Loan

When you are approved for refinancing, you will need to sign loan papers. Don’t forget to close out your original loan, too. If you refinanced with your original lender, they will use funds from the new loan to close your original loan. If you refinanced with a new lender, they will wire funds to close out your old loan. In either case, make sure your original loan is paid for and closed out.

Refinancing a personal loan can lower your interest rate, enable you to access more money, lower your monthly payments or extend your term. Be aware of the pros and cons of adjustable-rate loans. If you can’t refinance with your original lender, explore options with local institutions and online banks.


This article originally appeared on How to Refinance a Personal Loan

This article by Andrew Lisa first appeared on and was distributed by the Personal Finance Syndication Network.