Personal loans are used for home repair, car repair, wedding arrangements, etc. However, due to a lack of information and understanding, many people do not know another beneficial feature of this loan: refinancing.
So, can you refinance personal loans? The answer is yes; you can refinance it. Same or different lenders will allow it. Top investors discuss more about this to make you more clear about personal loan refinancing.
What Is Refinancing a Personal Loan
You can consider personal loan refinancing to make it more budget-friendly. Thus, you replace your current loan with a new one. And most importantly, the new one comes with better terms and conditions. Better terms and conditions mean lower monthly payments, a larger timeframe to pay it off, or a more convenient payment plan. Plus, you need the timeline for a personal loan to show up on your credit report.
Refinancing of the personal loan can be done with the same bank. However, it is often not that beneficial to do the refinancing with another bank or financial institution. Many lenders who offer regular loans also have options for refinancing. People usually refinance for two main reasons:
Saving Money: Refinancing can often score you a lower interest rate, which means you pay less overall.
Paying Off Debt Faster: If you want to pay down your debt more quickly, you can use a shorter loan term. However, shorter terms mean slightly higher monthly payments.
However, when you refinance the personal loan to another bank or lender, your current bank or financial institution may ask for a fee.
Why Refinance My Personal Loan
The following are the reasons to refinance the personal loan.
Lower Interest Rates
In this case, two particular scenarios you must consider. First, a little while must have passed after taking a personal loan. And due to some other healthy financial transactions, your credit score has increased. It means you are entitled to get a lower interest rate. Hence, you need to refinance the personal loan to use this benefit.
In the second scenario, you have found another bank or financial institution that is offering a lower interest rate on your personal loan than your current bank. This also can make you go for refinancing the personal loan. Besides, should you report your personal loan on tax filings?
Affordable Payments
Now, consider that your financial situation has been downgraded after taking the loan. Currently, you cannot go with the same monthly payment as you agreed when taking the loan. In this case, as a resolution, refinancing the personal loan is the best option.
Refinancing the existing loan is the most lucrative solution if you are struggling to make your current payments. Refinancing allows you to either extend the time you have to repay the loan or find a loan with lower interest rates. In both cases, you can make your monthly payments more manageable. You should also understand the timeline for a successful personal loan application.
Quicker Payoff
Paying the borrowed amount earlier can save you a lot of money. If you get a fund suddenly that you can use to pay off the loan more quickly, it can bring you a fortune.
Here, the early payoff thing can be done by refinancing the loan with a shorter loan term. This helps you get debt-free sooner and saves you money on interest.
Stable Interest Rates
If you have taken a personal loan with a variable interest rate, there is little or no predictability. In this case, your monthly payment, along with your interest rate, can fluctuate significantly. The associated sudden changes can make your whole financial situation unstable.
So, take the opportunity of refinancing and switch from variable interest rates to fixed interest rates. The fixed-rate terms make your monthly payment and overall interest rate the same throughout your loan period. It is a way to know exactly what you will pay monthly.
Advantages and Disadvantages of Refinancing Personal Loan
Here are the pros and cons of refinancing the personal loan.
Pros of Refinancing Your Personal Loan
- You can get the opportunity to have a smaller monthly payment.
- If your personal loan has a variable interest rate, the refinancing allows you to get a fixed-rate personal loan.
- In case you have a suddenly accessible fund, then you can get a shorter payoff period by refinancing the loan. It will save you money.
- If your credit score has improved significantly, there is a huge chance that you will get a lower interest rate.
Cons of Refinancing Your Personal Loan
- If you go for refinancing with another lender, they will run a hard inquiry into your credit history. It can reduce your credit score.
- For refinancing with a different bank or financial institution, the bank may charge you some penalty fees.
- If you are going for a refinancing that comes with a longer payoff term, then you have to spend a lot of money in interest as an additional.
- Refinancing takes time. Also, you need to keep continuous and consistent contact with the old and new lenders. It means you have to put in effort.
Should You Refinance Your Personal Loan: Expert Investor Opinion
Decide on refinancing the personal loan if you are going through economic hardship and struggling to pay the monthly payment. Also, we suggest you go for refinancing if you can get a lower interest rate from the same or different lender. Besides, can you get a next-day personal loan?
Final Words
So, can you refinance personal loans? Now, you have a clear answer to the situations when you should go for refinancing. We strongly recommend you check the refinanced loan’s terms and conditions with the new lender.