Rick Bormin, Personal Loans Moderator
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.
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
- 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.
- 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.
- 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.
- Pay off the old loan. Use the funds from your new loan or do a balance transfer to a credit card.
- 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.
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