How to Refinance a Personal Loan (and When Not To)

A personal loan refinance is simple in concept: a new lender pays off your old loan, and you repay the new loan instead. Whether it is worth doing comes down to the remaining cost of the old loan versus the full cost of the new one.

Reasons to refinance

• Your credit improved. On-time payments and lower card balances may qualify you for a better APR than when you first borrowed.
• Your current APR is high. Loans taken in a hurry or with poor credit often carry rates well above what you could get now.
• You need a lower payment. A longer term lowers the payment, but read the warning below.
• You want to combine debts. You can refinance a loan and pay off a card balance in one new loan. See how debt consolidation works.

Worked example (illustration, not an offer)

You owe $8,000 at 29.99% with 30 months left. A new lender offers 17.99% with a $400 origination fee added to the balance.

Refinancing over the same 30 months saves about $974. Stretching to 48 months drops the payment by $135 a month, but it costs more than keeping the loan you have. Check your own numbers with the loan payment calculator.

Costs to check first

• Origination fee on the new loan. It may be taken out of the loan proceeds, so borrow enough to cover the payoff. See loan origination fees.
• Prepayment penalty on the old loan. The CFPB notes some loans charge one. Our guide on prepayment penalties explains what to look for.
• APR, not just the interest rate. APR includes certain fees, so it is the fairer comparison.

How to refinance, step by step

• Get your payoff amount from your current lender.
• Check your credit reports for errors and fix them first.
• Compare offers by APR, total cost and term.
• When approved, have the new lender pay the old loan directly if they offer it, or pay it yourself right away.
• Confirm the old loan shows as paid in full, and keep the payoff letter.

When to skip it

• The savings disappear once you add the fee and any penalty.
• You only qualify for a longer term that raises total interest.
• You are close to the end of the current loan, when most of the interest has already been paid.

If the numbers work, use the form on this page to see whether partner lenders may have a refinance offer, or call (800) 236-7761. More on the product: refinance loans.

Examples are illustrations, not offers. Approval and terms depend on the lender, your state and your credit profile.

Frequently asked questions about how to refinance a personal loan (and when not to)