Can You Refinance a Personal Loan? Everything You Need to Know

Refinancing isn’t just for mortgages or car loans—you can refinance a personal loan too. If you’ve improved your credit, want lower monthly payments, or need more favorable terms, refinancing could save you money or reduce financial stress.

This article breaks down everything you need to know about refinancing personal loans in a way that’s easy to understand, even if you’re not a finance expert.

What Does It Mean to Refinance a Personal Loan?

Refinancing a personal loan means taking out a new loan to pay off your current one. You’re not stacking loans—you’re replacing the old loan with a new one. The new loan typically comes with terms that are more favorable or better suited to your financial situation.

Refinancing can help you:

• Get a lower interest rate: If your credit score has improved or market rates have dropped, you might qualify for a lower rate. This can reduce the total amount of interest you pay over time.

• Change your loan term: You can choose a longer term to reduce your monthly payment or a shorter term to pay off the debt faster and save on interest.

• Lower your monthly payments: By extending your loan term or getting a lower rate, your monthly payments might be easier to manage.

• Switch to a new lender: Some lenders offer better customer service, easier payment tools, or flexible repayment options.

• Consolidate debt more effectively: If your original loan was part of a debt consolidation strategy, refinancing might let you reorganize multiple debts again under better terms.

Think of it like hitting the “reset” button on your loan—only this time, you’re aiming for terms that work better for your goals and budget.

Why Refinance a Personal Loan?

People refinance personal loans for many reasons, but it all comes down to getting terms that better fit their financial goals. Here are the most common reasons to consider refinancing:

1. Lower Interest Rates

If your credit score has improved or market rates have dropped since you took out your original loan, refinancing could help you lock in a lower interest rate. A better rate means you’ll pay less in interest overall—and possibly reduce your monthly payments, too.

2. Lower Monthly Payments

Stretching out your repayment period through refinancing can shrink your monthly payments. This is especially helpful if your budget is tight. Just keep in mind that while monthly payments may drop, you could end up paying more in interest over time.

3. Consolidate Debt

If you’re juggling multiple loans or high-interest credit cards, refinancing gives you a way to roll those balances into one simple loan. A single monthly payment is easier to manage and may come with a lower rate than your current debts.

4. Change Loan Terms

Refinancing gives you the chance to adjust your loan term. Want to pay off your loan sooner and save on interest? Choose a shorter term. Need more time and flexibility? Go with a longer term to reduce your monthly burden.

5. Switch Lenders

Not all lenders are created equal. If you’re unhappy with your current lender—maybe they have poor customer service, hidden fees, or a clunky app—refinancing lets you move your loan to a company that better meets your needs.

Whether you’re looking to save money, simplify your payments, or work with a new lender, refinancing your personal loan can be a smart move when the time is right.

How to Refinance a Personal Loan

Here are the simple steps to follow:

Step 1: Check Your Credit Score

Your credit score plays a huge role in what interest rate you’ll be offered. Many lenders offer lower rates to borrowers with scores over 670.

Step 2: Compare Lenders

Shop around. Use comparison sites or go directly to bank, credit union, or online lender websites. Look for:

• Interest rate

• Term length

• Monthly payment

• Fees (application, origination, early repayment)

Step 3: Use a Loan Calculator

A personal loan calculator can help you estimate monthly payments and total interest costs. Make sure the refinance makes financial sense.

Step 4: Apply for the New Loan

Submit your application with the lender offering the best terms. You’ll need:

• Proof of income

• Current loan details

• ID and address info

Step 5: Pay Off Your Old Loan

Once approved, the new lender usually pays off your old loan directly. Sometimes, you’ll need to use the new loan funds to do it yourself.

Step 6: Start Repaying Your New Loan

Follow the payment schedule for your new loan. Set up auto-pay to avoid late fees and possibly get a rate discount.

Pros of Refinancing a Personal Loan

• Lower interest rate

• Lower monthly payment

• Flexible loan terms

• Debt consolidation

• Improved lender experience

Cons of Refinancing a Personal Loan

• May extend your debt

• Could involve fees

• May temporarily hurt your credit (due to hard inquiry)

• May lose perks from original loan

• Approval isn’t guaranteed

When Not to Refinance

Refinancing isn’t always the right choice. Here are some situations where it might not be worth it:

• Your Credit Score Has Dropped: If your credit score is lower than when you got your original loan, you may not qualify for a better rate—and could end up with worse terms.

• You’re Near the End of Your Loan: If you’re close to paying off your current loan, refinancing may not save you much. You could end up paying more in fees than you save in interest.

• Fees Outweigh the Benefits: Watch out for high origination fees or prepayment penalties. If the cost of refinancing is more than the money you’ll save, it’s probably not worth it.

• You Can’t Get a Better Rate or Term: If lenders aren’t offering lower rates or better terms than your current loan, refinancing won’t help your financial situation.

Sometimes, the best move is to stay the course and finish paying off your existing loan—especially if you’re almost done.

What to Watch Out For

Refinancing a personal loan can be a smart move—but only if you’re aware of the potential downsides. Here are key things to look out for before you sign on the dotted line:

1. Origination Fees: Some lenders charge an upfront origination fee, typically ranging from 1% to 8% of the loan amount. This fee is deducted from your loan funds or added to your balance, so be sure to calculate whether the long-term savings from refinancing are worth the initial cost.

2. Prepayment Penalty: Your existing loan may charge a fee for paying it off early. Before refinancing, check your current loan agreement for a prepayment penalty. If one applies, factor that cost into your comparison to see if refinancing still makes financial sense.

3. New Loan Terms: A longer repayment term may lower your monthly payments—but it could also increase the total interest you pay over time. Make sure you understand how the new loan’s term affects your overall repayment and whether it aligns with your goals.

Carefully review the fine print on any new loan offer. Refinancing can help, but only if the numbers work in your favor.

Can You Refinance More Than Once?

Yes, you can refinance a personal loan more than once, but it’s not always a good idea. Each time you refinance, you could:

• Extend the debt payoff timeline

• Pay more interest

• Hurt your credit score with multiple hard inquiries

Only refinance again if you’re getting significantly better terms.

How Refinancing Affects Your Credit Score

Short-Term Impact:

• Applying for a new loan causes a hard inquiry, which may drop your score slightly.

• Closing your old loan might lower the average age of your credit accounts.

Long-Term Impact:

• On-time payments to your new loan can boost your score.

• Reducing your interest rate and staying out of default is good for your financial health.

Alternatives to Refinancing a Personal Loan

Refinancing isn’t the only way to manage or improve your loan situation. If it doesn’t work for you, here are some smart alternatives to consider:

• Negotiate with Your Current Lender: Talk to your lender about your financial situation. They might offer a lower interest rate, extend your repayment period, or remove fees—especially if you’ve made payments on time.

• Make Extra Payments: If you can afford it, making extra payments—either monthly or in lump sums—can help you pay off your loan faster and save money on interest. Just make sure your loan doesn’t have prepayment penalties.

• Use a 0% Balance Transfer Credit Card: Some credit cards offer 0% interest for a limited time (usually 12–18 months) on balance transfers. If you qualify, you could move your loan balance to the card and pay it off interest-free during that promo period. Watch out for transfer fees.

• Apply for a Debt Consolidation Loan: A debt consolidation loan lets you combine multiple debts into one loan with a single monthly payment. It may offer a better interest rate or term compared to your current personal loan.

• Talk to a Credit Counselor: Nonprofit credit counseling agencies can help you build a plan to manage your debt. They may suggest better options or negotiate with your lenders on your behalf.

These options can help reduce your financial stress without the costs or risks that sometimes come with refinancing.

Final Thoughts: Is Refinancing Right for You?

So, can you refinance a personal loan? Yes—but only if the math works in your favor.

Before refinancing, ask yourself:

• Will I save money in interest?

• Will my monthly budget improve?

• Are there any hidden fees?

• Is my credit strong enough to qualify?

If the answer is yes, then refinancing might be a smart financial move. Just be sure to read the fine print, compare lenders carefully, and think long term.