Can You Refinance a Personal Loan?
Written by
Sarah Silbert
Edited by
Melanie Grafil
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
You can refinance a personal loan, either with your current lender or by switching to a new one. Most lenders allow you to refinance, and it could make sense to do so if you can secure a lower rate.
What Does It Mean to Refinance a Personal Loan?
Refinancing a personal loan means replacing your existing loan with a new one, ideally with better terms. The goal is generally to:
- Get a lower interest rate
- Reduce your monthly payment
- Change your loan term to a shorter or longer timeframe based on what works best for your budget
When you refinance a personal loan, you get a new loan that pays off your old one, and you start with new terms that dictate your interest rate and the lifespan of your loan.
How Soon Can You Refinance a Personal Loan?
You could be able to refinance your personal loan as soon as you start making payments on it, though requirements vary by lender.
Some lenders allow refinancing after six months of making your first loan payment, while others just want to see some history of on-time payments before allowing you to refinance. Check with your lender for its exact policy, since there’s no rule across the board.
How To Refinance a Personal Loan
To refinance a personal loan, follow these steps:
- Check your credit score. Ideally, your credit has improved since you first took out the loan, which could qualify you for a lower interest rate.
- Compare offers from different lenders. Comparison shopping helps you score the lowest rate and the best terms possible, so don’t just go with the first lender you find.
- Choose a new loan with better terms. Find the option that works best for you after shopping around and looking at offers with various lenders.
- Apply and get approved. A lender will look at your credit score, income and other financial details such as your debt-to-income ratio and employment history, when reviewing your application and deciding what loan term and interest rate to offer you.
- Use the new loan to pay off the old one. You’re effectively closing your original loan when you refinance.
- Start making payments on the new loan. You’ll have a new interest rate and new loan terms, and possibly new fees to be aware of — though ideally you’ll refinance to an option without extra fees.
Pro Tip
Some lenders allow you to prequalify first to see rates without hurting your credit score.
Can You Refinance with the Same Bank or Lender?
Some lenders allow you to refinance an existing loan through them, while others may require you to refinance with a different lender.
Even if your lender allows refinancing, it’s smart to compare multiple offers. Another lender could have a better interest rate or offer more loan terms than your existing option.
When Does It Make Sense to Refinance a Personal Loan?
It could make sense to refinance a personal loan if your credit score has improved since you first took out the original loan. Your credit score determines the loan interest rate you qualify for, so any improvement to your credit could result in savings for your monthly payment.
Additionally, if personal loan interest rates overall have shifted downward since you got your original loan, you could have an opportunity to secure a better rate. Check average personal loan interest rates to get a sense of whether the overall market has changed.
You might also consider refinancing your loan if you want to lower your monthly payments or change the loan term.
What Happens When You Refinance a Personal Loan?
To lower your monthly payments, you’d be looking to refinance into a longer loan term, where you pay the borrowed funds off over a longer period of time.
Other reasons to refinance a personal loan include to consolidate multiple loans into a single one with one payment per month or to avoid high fees and interest on your current loan if you think you can score a better deal when you refinance.
Pros and Cons of Refinancing a Personal Loan
Refinancing a personal loan can help you save money in the long run if you score a lower interest rate or choose a shorter term, but there are potential disadvantages to keep in mind as well.
Pros:
- Lower interest rate
- Reduced monthly payments if you score a lower interest rate or change the loan term
- Chance to pay off your loan faster
- Consolidate debt into one new loan for a single monthly payment
Cons:
- May have fees, such as origination or prepayment
- Could extend your loan term, which means you’ll be paying it off over a longer period of time
- Multiple hard inquiries can affect your credit
- New loan approval isn’t guaranteed
FAQs About Refinancing a Personal Loan
To help you make the best decision for your finances, here are answers to some of the most frequently asked questions about refinancing a personal loan.- Can I refinance if I have bad credit?
- You could still be able to refinance a personal loan if you have bad credit, but it may not be worth it if you don't qualify for a better interest rate or better loan terms.
- Will refinancing hurt my credit score?
- Refinancing a personal loan can cause a temporary dip in your credit score due to the hard credit inquiry a lender will pull when you apply, but it could be worth it if refinancing saves you money in the long run and if you make all of your payments on time.
- How many times can you refinance a personal loan?
- There's no set limit to how many times you can refinance a personal loan. You can refinance as many times as you qualify for a new loan, but keep in mind that each time you refinance there will be a temporary dip in your credit score.
- What happens to my old loan after refinancing?
- After refinancing, your old personal loan is replaced with the new one, so the original loan's interest rate and terms no longer apply.
Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.
- Consumer Financial Protection Bureau (CFPB). "§ 1026.20 Disclosure requirements regarding post-consummation events."
- Federal Trade Commission (FTC). "Buying a Used Car From a Dealer."
- CFPB. "I received a revised Loan Estimate from my lender showing a higher interest rate and increased closing costs. What does this mean?"
