When and How to Refinance a Personal Loan

8 min read
When and How to Refinance a Personal Loan

A personal loan refinance involves taking out a new loan and using that money to pay off your existing debt. You can sometimes do this directly with your original lender, or you may want to work with a new lender. In either case, refinancing may help you save money or lower your monthly payments.

What Does It Mean to Refinance a Personal Loan?

Refinancing a personal loan means you’re paying off an existing personal loan using a new one that typically has more favorable terms, like a lower interest rate or lower monthly payments than your original loan.

Although you’re applying for a personal loan, it doesn’t technically mean you’re taking on more debt—in fact, refinancing may actually help decrease debt more quickly if you’re able to secure a lower APR.

When Does It Make Sense to Refinance a Personal Loan?

Many people choose to refinance once they can qualify for a lower APR, which can lead to saving money. Others may want to make a change to their loan terms—like lowering the monthly payment amount or extending the repayment period. There are a few circumstances that could make these changes possible.

1. Your credit improved.

Personal loans are often unsecured loans, meaning you’re not using a car, home, or other personal asset as collateral. Because of this, your creditworthiness can be especially important in determining your eligibility and interest rate. If your credit history, credit score, or debt-to-income ratio has improved since you first took out a loan, you may want to consider refinancing.

2. Interest rates dropped.

Lenders may offer lower or higher interest rates based on changing benchmark interest rates and competition in the market. Even if your credit picture hasn’t improved since you first took out a loan, you might still qualify for a lower rate today. If you’re curious, LendingClub Bank lets you quickly check your rate without impacting your credit.

3. Opportunity for a fixed interest rate.

If your current loan has a variable interest rate and you’re worried it will increase in the future, refinancing with a fixed rate personal loan can help alleviate that stress. By locking in a fixed interest rate for the lifetime of the loan, you may gain more control over your budget and overall financial goals.

4. You can afford a larger monthly payment.

You may also be able to qualify for a lower APR by taking out a new loan with a shorter term. Your monthly payment could increase as a result, but if you can afford the payment, it might save you money in the long term.

5. You want a lower monthly payment.

Conversely, if you’re having trouble affording your current monthly payment, refinancing your personal loan with a new one with a longer repayment term could help. The longer term would allow for lower monthly payments, so though you may wind up paying more overall interest, it could be a worthy tradeoff if you need the money for other bills now.

How to Refinance a Personal Loan in 5 Steps

Getting approved for a personal loan refinance will depend on your financial situation. But you can get the process started by following these steps.

1. Decide how much money you need.

First, look up how much you owe on your current personal loan. Then, check if your current lender charges any prepayment penalties or fees, as that will affect the total amount needed for payoff. Add both of these numbers to get your estimate.

Or, if you want to refinance more than one loan, add up the total combined amount (including potential penalties or fees). Refinancing multiple loans is also called debt consolidation, as you’re essentially combining multiple loans into one. In some cases it makes sense to take out one personal loan and use those funds to pay off other personal loans, credit cards, and high-interest debts all at once.

2. Check your credit.

You may also want to check your credit score to see if you’re likely to qualify for a new personal loan with a more favorable interest rate. Having excellent credit—a score above 750—is ideal. However, loan options may still be available even if your credit scores are in the fair or good ranges.

When checking your credit report, review it closely for any errors. If you find any, file a dispute with one of the three major credit bureaus immediately, as errors can affect your credit score.

3. Compare personal loan refinance rates and fees.

Many lenders let you check to see if you prequalify for any loan offers before applying. This gives you the opportunity to review the estimated loan amounts, interest rates, loan terms, and application and origination fees to see if refinancing your debt(s) makes sense. If possible, opt for lenders who, like LendingClub Bank, don’t charge a prepayment penalty or exit fee in the case you need to refinance your debt in the future.

Keep in mind, an origination fee may be subtracted from the loan disbursement. For example, if you take out a $10,000 loan with a 3% origination fee ($300), you would receive $9,700. With this in mind, consider how much you’ll need to borrow to refinance or consolidate your debts.

4. Find the right lender and apply.

It helps to compare loan offers between several lenders to ensure you’re getting the best deal possible.

Even if you received loan estimates before applying, review your official loan offer closely, as the number or terms may be different, especially if there’s been a significant change in your creditworthiness. LendingClub Bank loan offers include your loan’s annual percentage rate (APR), loan amount, term, and origination fee—making it easy to understand terms and compare offers.

5. Pay off your other loan(s).

Your new personal loan will generally be sent to your bank account. From there, you’ll need to use those funds to pay off your other loan(s) to complete the refinancing. In the meantime, continue paying your other bills as usual until you’ve received confirmation that the debt is paid

The Pros and Cons to Refinancing Your Personal Loan

Refinancing a personal loan isn’t always a good idea, primarily because there’s no guarantee that the terms on your new loan will be better than your existing loan terms. Here are a few pros and cons to consider:



You can save money by lowering your interest rate.

Only helpful if you can qualify for more favorable terms.

You can potentially lower your monthly payment.

You may have to pay an origination fee.

A fixed-rate loan locks in your rate.

Some loans may have prepayment penalties.

When Refinancing Your Personal Loan Might Be a Good Idea

While you may be able to refinance a personal loan at any time, it may make more sense to do so at certain times.

Your income has increased.

A higher income may signal to lenders a better ability to repay your loan, which can mean lower APRs and better loan terms.

Your credit score went up.

If your credit score has improved since taking out your original loan, you may be able to score lower APRs and better terms.

You can get a lower APR.

Taking advantage of low APR could lower the cost of your loan.

You can get lower monthly payments.

If you’re having trouble affording your current loan’s payments, refinancing might help by extending your term, which leads to potentially lower monthly payments.

You’re able to pay off the loan sooner.

Alternatively, if you’re able to afford higher monthly payments, refinancing to shorten the length of your loan could save you money in interest.

When Should You Wait to Refinance?

Refinancing a loan has benefits, but there are some situations that may indicate it’s best to wait.

The new loan has too many fees.

In addition to application and origination fees, some lenders charge additional fees that can add to your overall loan balance. Understand the terms involved with refinancing to ensure it makes financial sense.

Your current loan has prepayment penalties.

Some lenders charge fees for paying off your loan early. In some cases, this may be a percentage of the outstanding loan balance you pay off. Read the fine print of your loan terms carefully to figure out the cost—if any—associated with paying off your loan early and then compare offers to make sure you’re still getting a fair deal after paying the fee.

The interest rate is the same or higher than your current loan.

Sometimes refinancing a personal loan means extending your debt timeline, which means you’ll pay interest on those additional months or years.

Refinancing Your Personal Loan with LendingClub Bank

LendingClub Bank offers fixed rate personal loans that can be used to refinance existing debt. Choose the loan amount and terms that work for your personal finances, and then use the cash to pay off your old loan. While your credit score may initially see a dip as a new tradeline is added, you may improve your credit score over time by making on time payments on your loan.1

Before agreeing to any personal loan offer, be sure to compare rates and terms against your existing personal loan to make sure you’ll benefit from refinancing. You can check your rate online for free with LendingClub Bank to see examples of loan offers.

The Bottom Line

You may want to refinance a personal loan to lower your interest rate (and save money) or lower your monthly payment (even if you pay more overall). If you’ve significantly improved your creditworthiness, you may even be able to qualify for a new loan with a lower rate and lower payment—a real win-win.

Refinancing a Personal Loan FAQs

1. Can you refinance a personal loan?

You can refinance a personal loan by taking out a new loan and using it to pay off the existing one. It could be a good idea if you qualify for a lower APR or monthly payment (or both).

2. How long does it take to refinance a personal loan?

It depends. The approval process for personal loans varies by lender and, once approved, it can take several business days to receive the funds. You’ll then need to use that money to pay off your current loan, which could take a few more days.

3. Does refinancing a personal loan hurt your credit?

Because you’ll need to apply for and take out a new loan, refinancing a personal loan may cause a drop in your credit score. But if you make your payments on time it likely won’t have a long-term negative impact, and paying down your debt faster may increase your score overall.1

4. What are my personal loan refinance options?

It’s often best to refinance a personal loan with another unsecured personal loan. While you could use a different type of loan, such as a cash-out mortgage refinance, you’d be moving the debt to a secured loan. Doing so could increase the risk of losing your collateral—your home, in this case—in the event of non-repayment.

1 Reducing debt and maintaining low credit balances may contribute to an improvement in your credit score, but results are not guaranteed. Individual results vary based on multiple factors, including but not limited to payment history and credit utilization.

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Savings are not guaranteed and depend upon various factors, including but not limited to interest rates, fees, and loan term length.

A representative example of payment terms for a Personal Loan is as follows: a borrower receives a loan of $19,584 for a term of 36 months, with an interest rate of 10.29% and a 6.00% origination fee of $1,190 for an APR of 14.60%. In this example, the borrower will receive $18,663 and will make 36 monthly payments of $643. Loan amounts range from $1,000 to $40,000 and loan term lengths range from 24 months to 60 months. Some amounts, rates, and term lengths may be unavailable in certain states.

For Personal Loans, APR ranges from 9.57% to 35.99% and origination fee ranges from 3.00% to 8.00% of the loan amount. APRs and origination fees are determined at the time of application. Lowest APR is available to borrowers with excellent credit. Advertised rates and fees are valid as of July 11, 2024 and are subject to change without notice.

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