Does refinancing a personal loan hurt your credit?

It is good to refinance a personal loan if you can get a significantly lower APR because it will save you a lot of money on interest in the long run. Other things that determine whether it’s a good idea to refinance a personal loan include what fees you’ll have to pay and how good your credit score is. Both will affect your ability to save money, which is the point of refinancing.... read full answer

When you refinance a personal loan, you borrow money and use it to pay off the loan, moving what you owe to the new lender. And before you borrow, you should go through a quick checklist to make sure that refinancing is worth your while.

When It’s Good to Refinance a Personal Loan

• When you can get a significantly lower APR. The main purpose of refinancing a loan is to save money on interest. You’re in the best position to get a lower APR if your credit and/or income have improved significantly since you took out the first loan.
• When the fees don’t wipe out your savings. Getting a lower APR is great, but the benefits can be diminished if you have to pay a lot of expensive fees. For example, a big origination fee could defeat the purpose of saving money on your APR.
• When you’re not about to make a big purchase. You want the best credit score possible before buying a car, a house or anything else that requires a credit check. Refinancing a loan right before doing that will drop your score by a few points, which could hurt your approval chances and rates.

In conclusion, it’s good to refinance a personal loan as long as it will save you money and won’t negatively impact your other financial priorities.

To refinance a personal loan, borrow money equal to the amount you have left to pay on the loan, but at a lower interest rate, then use that money to pay off the personal loan. You will then owe the refinanced debt to the new lender and will have to make monthly payments on it until it is paid off.... read full answer

More specifically, there are a few different ways you could refinance a personal loan. You could pay it off with another personal loan, with a 0% APR credit card or with a home equity loan. But no matter where you get the funds from, the process is pretty much the same.

How to Refinance a Personal Loan

1. Get pre-qualified. Pre-qualification shows you your likelihood of approval and potential rates with certain personal loans or credit cards. Getting pre-qualified for several options will help you find the one with the highest approval odds and the lowest costs.
2. Submit an application. Loan and credit card applications will require similar personal and financial information, and you can typically expect to wait up to a week for approval.
3. Wait for your funds. If you get a loan, you will receive the funds in your bank account or through a check, usually 1 to 2 business days after approval. If you get a credit card, it will typically take 7-10 business days to arrive by mail.
4. Pay off the old loan. Use the funds from your new loan or do a balance transfer to a credit card.
5. Make payments to the new lender. You should have a lower APR, allowing for a quicker payoff timeline.

While finding a lender with a low APR is important when refinancing, make sure to keep each lender's fees in mind, too. If there's an expensive personal loan origination fee, for example, it could wipe out the savings you get from the lower APR.

The downside of refinancing is that you might not always be able to get a rate on your new loan or credit card that's better than your current rate, in which case that defeats the purpose. You could also potentially have fees on the new loan or credit card, which increases the total amount you need to borrow. And refinancing a debt also leads to a hard pull of your credit, which will temporarily cause a small drop in your credit score.... read full answer

That said, refinancing is often a very good thing, and can save you a significant amount of money. Plus, the hard pull is easy to recover from after a few months of on-time payments.