To refinance a personal loan, you need to pay off the loan balance with either a new loan or a balance transfer credit card. The goal of refinancing a personal loan is to save money, so the new loan or credit card should have a lower APR and lower fees than your original loan. This will enable you to save money as you repay the new loan or credit card.
You can find step-by-step instructions below.
6 Steps to Refinance a Personal Loan
- Check Your Credit Score Before Refinancing Your Personal Loan
- Compare Personal Loans for Refinancing
- Compare Other Ways to Refinance Personal Loans
- Calculate Savings and Decide Whether to Refinance Your Personal Loan
- Apply for a New Loan or Credit Card to Refinance the Old Loan
- Pay Off the Old Loan and Make Payments on the New Account
1. Check Your Credit Score Before Refinancing Your Personal Loan
When you’re trying to refinance a personal loan, it’s best if your credit score is higher than when you first took out the loan. Otherwise, you may have a difficult time finding a loan or credit card with a lower interest rate. You can check your credit score for free on WalletHub.
You can also pre-qualify with multiple lenders for free on WalletHub. This tool allows you to see which lenders may approve you and what rates may be available to you.
2. Compare Personal Loans for Refinancing
You should take your time to look through as many personal loan options as possible in order to determine the best one to use to refinance your current loan. Weed out any loans you can’t qualify for with your current credit score. Then, eliminate ones that don’t offer the potential for a lower interest rate than you already have. It’s also best to avoid loans that charge origination fees, if possible.
Best Personal Loans for Refinancing
|Lender||APR||Loan Amounts||Score Required|
|Avant||9.95% - 35.99%||$2,000 - $35,000||600|
|Best Egg||8.99% - 35.99%||$2,000 - $50,000||640*|
|Achieve Personal Loans||7.99% - 29.99%||$5,000 - $50,000||620|
|LendingClub||8.05% - 35.89%||$1,000 - $40,000||600 – 640*|
|LightStream||7.99% - 25.99%||$5,000 - $100,000||660*|
|SoFi||8.99% - 25.81%||$5,000 - $100,000||680|
*According to multiple third-party sources.
Learn more about the best personal loans for refinancing.
3. Compare Other Ways to Refinance Personal Loans
Balance transfer credit card
A balance transfer credit card is a common tool for refinancing relatively small debts. The issuer of the credit card pays off your original debt, and the same amount gets charged to the credit card. You then owe the debt to the credit card issuer.
Ideally, the card will have a lower interest rate than your loan. Many credit cards offer 0% introductory APRs on balance transfers, with the average lasting 13 months and the best balance transfer cards giving as long as 18 to 21 months with no interest.
Home equity loan
A home equity loan can also be used to refinance a personal loan. The amount you can borrow will depend on the home’s value minus the mortgage balance. The loan will be secured by the home, though. You risk losing your home if you don’t repay the loan.
4. Calculate Savings and Decide Whether to Refinance Your Personal Loan
You can calculate how much refinancing your personal loan will save you by using WalletHub’s personal loan calculator. Your new loan should have a lower APR than your original loan, which should save you money in the long run. Before you decide to refinance, though, it’s best to consider the pros and cons.
Pros and Cons of Refinancing a Personal Loan
|Better APRs than your original loan’s rate may be available.||There may be extra fees associated with a new loan or credit card.|
|You may be able to get a longer payoff period than your original loan.||Your credit score will drop slightly due to the new inquiry.|
|Refinancing will get you closer to financial stability.||A longer repayment period may mean more interest payments.|
5. Apply for a New Loan or Credit Card to Refinance the Old Loan
If you decide to get a new loan to refinance your old loan, you may be able to apply online, by phone or in person at a branch. In most cases, you should receive a decision within just a few business days. And if you’re approved, you’ll typically receive your money within 7 business days of applying. It could take less or more (up to 30 days), depending on the lender.
If you decide to use a balance transfer credit card, you may be able to apply online, over the phone, in person or by mail. You should get the card around 7 business days after approval.
6. Pay Off the Old Loan and Make Payments on the New Account
Some lenders may directly pay off your old creditor if you indicate your account information on the application. But in most cases, you’ll just receive a lump sum of money and will need to make a payment to your old creditor for the full remaining balance.
You’ll be responsible for making regular payments (usually monthly) on your new debt, just like with the old loan. And remember, you can always pay more than the minimum required each month. The vast majority of lenders will not penalize you for doing so. Paying more than the minimum will help you pay off your loan sooner.
It can be a good idea to refinance a personal loan. But before you choose to do so, make sure you research your options thoroughly. Only refinance if you’re sure you will save money and if you can’t get a better deal through a balance transfer credit card.
WalletHub provides a few free tools that can be helpful for comparing the costs of refinancing a personal loan. The first is our personal loan pre-qualification tool. It allows you to see your odds of approval with various lenders, along with an estimate of the APRs you might receive if approved.
You can also use WalletHub’s balance transfer calculator to help you see how much you could save by moving the debt to a cheaper credit card.