Are you considering refinancing your existing personal loan? If so, you must consider all of the advantages and disadvantages of this decision before moving forward. Refinancing a loan can be a smart financial move if done at the right time.
However, there are some things to consider, such as the terms you will receive in the new loan agreement, additional fees associated with closing costs or processing charges for refinancing, and how long the refinance process might take.
In this blog post, we'll provide an overview of when it makes sense to explore refinancing personal loans and tips for taking control of your finances to secure better interest rates.
What is personal loan refinancing?
Personal loan refinancing is a process whereby a borrower who has taken out one personal loan replaces it with another. This allows refinancing the original loan at more favorable terms, such as lower interest rates or extended repayment periods. It can also help to reduce monthly payments and total costs over the life of the loan.
When deciding whether to refinance a personal loan, it’s important to consider several key factors. First and foremost, you should compare current APRs (annual percentage rates) on your existing loan with those available for new ones. Interest rate fluctuations can lead to significant savings over time if you opt for an offer significantly better than you currently have. It’s also important to consider closing costs, processing fees, and the time to process a loan refinance.
In addition, it’s important to understand how refinancing could affect your credit score. Taking out multiple loans quickly can lower your credit score as lenders may see you as more likely to default on the new loan than someone with a better borrowing history.
Lenders to Consider For Personal Loan Refinancing
LightStream:
LightStream is a division of SunTrust Bank and provides easy-to-access personal loan refinancing services. It offers competitive interest rates with no fees, flexible repayment terms of up to 7 years, and fast approval. You can check your estimated rate without affecting your credit score in as little as two minutes. LightStream also offers special deals for medical professionals and military personnel.
LendingClub:
LendingClub is an online marketplace that connects borrowers with investors who offer personal loan refinancing solutions. The loans feature fixed rates over 3-5 year terms and the company works closely with credit bureaus to ensure accurate reporting of payments which may help improve credit scores over time. Additionally, there are no prepayment penalties which allows customers the flexibility to pay off their loans early if desired.
Marcus by Goldman Sachs:
Marcus by Goldman Sachs is an online lender that offers competitive rates on personal loan refinancing with repayment terms of up to 6 years. The application process is simple and approval decisions are usually given within 1-2 business days. There are no fees associated with refinancing a loan through Marcus, and customers can select from multiple payment options, including auto-deduct payments, for added convenience.
ELFI (Education Loan Finance):
ELFI (Education Loan Finance) provides personal loan refinancing services tailored to borrowers looking to refinance student loans or consolidate other debts such as credit card balances or medical bills. The loans feature fixed interest rates over 5-15 year terms and the company offers discounts for automatic payments and military service.
PenFed:
PenFed is a credit union that offers competitive interest rates and flexible repayment terms on personal loan refinancing services. It’s important to note that you must be a member of PenFed to take advantage of their services, but membership is open to anyone who qualifies as part of the Military, Department of Defense, government employees, or family members.
Is refinancing a loan a good idea?
Whether or not refinancing a loan is a good idea depends on each individual’s circumstances. Generally, if the new loan offers better terms than your existing one – such as lower interest rates, extended repayment periods, or reduced fees – then it could be beneficial to explore refinancing options. It’s important to carefully compare rates and terms before making any decision and consider how this may affect your credit score in the long term.
Potential Advantages of Refinancing a Personal Loan
Lower interest rates
Refinancing a loan with a lower APR can result in substantial monthly and total savings over the life of the loan.
Reduced monthly payments
By extending the repayment term, borrowers can reduce their monthly payments and use that extra money to pay off other debts or invest for future goals.
Single payment
Borrowers who have taken out multiple loans can refinance them into one payment, making it easier to manage overall debt levels.
Credit score improvement
When borrowers make consistent on-time payments, this can help improve their credit score over time as lenders view them as being more responsible with debt obligations.
Access cash quickly
Some lenders provide fast approvals and deposits, making accessing cash for emergencies or other needs easy.
Fixed interest rates
Some lenders may offer fixed interest rates, providing more stability than variable-rate loans.
Lower fees
Refinancing can reduce the total cost of a loan by eliminating or reducing certain fees associated with closing costs or processing charges.
How to refinance a personal loan
Before refinancing a personal loan, it’s important to consider the advantages and disadvantages of this decision. Once you’ve decided that refinancing is the best course of action for you, there are several steps to follow:
- Compare interest rates from several lenders to ensure you get the most competitive rate.
- Consider factors such as fees associated with closing costs or processing charges, repayment terms, and any other potential restrictions on your loan agreement.
- Check your credit score and ensure it is in good standing before applying for a loan refinance.
- Gather all necessary paperwork, such as pay stubs or bank statements, to provide the lender with accurate information about your financial situation.
- Apply for the loan and wait for approval. Once approved, please review all of the details of the new loan agreement before signing off on it.
FAQs
How soon is too soon to refinance a personal loan?
It’s typically best to wait at least six months before considering refinancing a personal loan to build up your credit score and ensure better terms.
How do you know if it is the right time to refinance?
The best time to refinance a personal loan is when you can get better terms than your existing loan, such as a lower interest rate or a longer repayment period. It’s also important to consider other factors, such as fees associated with closing costs or processing charges for refinancing, and how long the refinance process might take.
Can I refinance a personal loan with bad credit?
Finding lenders willing to refinance loans with bad credit may take time and effort. However, it's still possible, depending on the lender and other factors. It’s important to compare multiple-lender offers to ensure you get the best deal.
Conclusion
Refinancing a personal loan is a great way to save money and improve your credit score. Before making any decisions, it’s important to consider all of the advantages and disadvantages of this decision and compare rates from several lenders. This can help you get the best terms for your new loan agreement.
