How To Refinance A Personal Loan

Can I refinance my existing personal loan?

Yes, you can refinance an existing personal loan. In some cases, refinancing a personal loan can allow you to save money and lower your monthly payment. However, there are some other cases where it may actually cost you more money. You'll want to pay close attention to the terms and compare numbers.

To refinance a personal loan, first, you will want to pre-qualify for a new loan. Checking pre-qualified offers at Acorn Finance does not impact your credit score. By pre-qualifying, you can compare loan offers against multiple lenders as well as compare the new loan to your existing loan.

Next, you will want to consider all the refinancing costs. Calculate the new loan's interest and fees and compare them to your existing loan to determine if the new loan will reduce your monthly payments and or save you money over time.

Once you receive the loan, go ahead and pay off the existing loan with the new loan. Some lenders will do this on your behalf as a service for you. If not, the lender should simply deposit the funds into your checking account and you will have to pay off the existing loan yourself.

Make sure you confirm that the old loan is paid off and hold on to all confirmation documents.

Now you are ready to start making payments toward the new loan.

When should you refinance a personal loan?

It could be a smart move to refinance a personal loan if your credit has improved and you have paid off other debts. You might qualify for a lower interest rate now. If this scenario relates to you, you should check offers and determine if refinancing makes sense. You should compare new loan offers to your existing loan. Ask yourself, does it make sense to refinance the personal loan or pay the existing loan off faster? You may need to use a personal loan calculator to compare the numbers for various scenarios.

Another scenario that may cause you to refinance a personal loan is if you are struggling to make your monthly payments. Refinancing the loan may allow you to lower your monthly payment. You may pay more in interest over time, but at least you will be able to afford the monthly payment.

You can also do the opposite if you feel like your monthly payments are too low. Maybe you got a promotion at work and more monthly income to play with. You can refinance your existing loan to get a shorter loan repayment period with higher monthly payments. Paying the loan off faster should save you money by paying less interest over time. In some cases, you may not need to refinance to pay the loan off early and save money.

Does refinancing a personal loan hurt your credit?

The short answer is yes, but usually just temporarily in the short term. However, if you are making all your monthly payments on time, then long-term you should be fine. In fact, making on time payments and paying off the loan balance should improve your credit score. But here is how it could hurt your credit score.

If you are shopping for a new loan, make sure you are not filling out loan applications that take hard inquiries of your credit report. At Acorn Finance, you can fill out one application using a "soft pull" of your credit score. Doing so will let you shop multiple lenders without having to fill out multiple applications. Hard inquiries can stay on your credit score for two years and can affect your credit score for 12 months.

Once you receive the new loan, your credit score may take a slight dip because the new loan will shorten your average age of accounts.

Overall, if refinancing an existing loan will help you with a better interest rate or lower monthly payments, do not worry about the hit to your credit score. In the long term, the impact should be minimal if you continue to make your payments on time.

Is it good to refinance a personal loan?

It is good to refinance a personal loan if it will be beneficial to your financial and credit situation. Make sure you calculate the interest and fees of both your existing loan and the new loan to make sure you are saving money somehow, otherwise it is not worth it.

When is refinancing a bad idea?

There are a few reasons why it is not a good idea to refinance a loan.

First, do not refinance if you have a long period to wait before you will actually start saving money.

Second, be wary of adjustable rates. If you already have an interest rate you can live with, you should avoid trading it in for a lower rate that is adjustable.

Lastly, always do the math to see if you will be better off. If you are unsure, seek help from a CPA or a financially savvy family member to review the documents for you.

Why do banks want you to refinance?

There are two main reasons that banks may want you to refinance. First, if interest rates go down in general, they may want to keep you from shopping interest rates at other lenders. That is why your lender may reach out to you preemptively saying they can lock you in for refinancing at a lower interest rate.

Second, fees. Banks love charging fees. If you have to fill out an application with the bank, there may be an application fee. If you are refinancing a mortgage, you may have to repay closing costs. But even if you calculate in those fees, it still might make financial sense for you to refinance anyway. It is kind of a win-win situation for you and the lender.

Does your loan amount increase when you refinance?

An important thing to be aware of is that your loan amount can increase if you refinance your existing loan if that loan is old. Usually, a higher percentage of your monthly payments go to interest for the first few years. If your loan is already 4 or 5 years old, or older, a higher percentage of your monthly payments should be going to the principal. Refinancing can start this over for you, resulting in you paying more interest over time. However, it still might be better financially for you. This is another example of why you should consider everything before refinancing a loan.

Closing Thoughts
Refinancing a personal loan is not a decision you should just jump into. It is important that you shop around and crunch the numbers to make sure that refinancing a loan is ultimately the right decision for you that will save you money when all is said and done. If you are considering refinancing a personal loan, you should check offers at Acorn Finance.

Acorn Finance has trustworthy lending partners that can offer APRs as low as 6.99% depending on your credit score. Individuals can discover simple and competitive payment options through Acorn Finance. At Acorn Finance, you can submit one application and receive loan offers in 60 seconds or less with no impact to your credit score. Once you have claimed the best offer and finalized the loan, you can receive funds quickly.

Need to refinance a personal loan? Explore offers with no impact to your credit score!