How to Refinance a Personal Loan?

 

How to Refinance a Personal Loan

You can refinance a personal loan through a traditional bank, credit union or online lenders. You can even refinance your loan with the same bank if they allow it. If you're ready to refinance your personal loan with your current bank or another lender, follow these six steps:

1. Determine How Much Money You Need

Make sure your new loan has a borrowing limit high enough to pay off your current loan. Remember, your lender may charge a prepayment penalty, and your new loan may come with an origination fee, both of which you should account for when you run your numbers. You'll want to ensure any penalties and fees don't negate the benefits of refinancing.

2. Review Your Credit Report and Credit Score

Before you start shopping for a new loan, consider getting your credit report and credit score to find out where your credit stands. Keep in mind, lenders typically advertise the lowest rates—the ones they reserve for borrowers with the best credit. You may not receive the advertised rate if your credit score is less than exceptional.

3. Shop and Compare Rates and Terms

Prequalify with multiple lenders to see the personal loan rates and terms that may be available to you. Prequalifying allows you to compare loan offers without affecting your credit score. Make sure your comparisons are apples-to-apples for the same loan amount and repayment term and take into account any applicable loan fees.

4. Submit Your Application

Once you single out a loan offer as the best for your needs, fill out an application and provide any requested supporting documents, such as your personal identification, Social Security number, pay stubs and account statements.

If a bank or credit union approves your personal loan, you should receive the funds within one to five days. Many online lenders fund your loan as soon as the same day or the next business day.

5. Pay Off Your Existing Loan

While your lender may transfer the personal loan funds to your account, other lenders may pay off your original loan on your behalf. You may qualify for interest rate reductions for opting to have the lender directly pay off your loan, so check your terms carefully before making a decision. Remember to check your account to confirm the first loan is closed and no balance or additional fees remain.

6. Make Payments on Your New Loan

When you receive funds for the new loan, your repayment period begins. It's a wise practice to set up automatic payments to ensure you never miss a payment.