Rick Bormin, Personal Loans Moderator
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.
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.
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