How to Refinance a Personal Loan

When you refinance a personal loan, you pay it off with another loan. Ideally, your new loan has a lower rate.

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When you refinance a personal loan, you replace an existing loan with a new one. This strategy can save you money if you qualify for a lower interest rate on the new loan.

Here’s how to refinance a personal loan, plus when it’s a good idea and what to consider before you refinance.

How to refinance a personal loan

  1. Pre-qualify for a new personal loan. Pre-qualify with multiple lenders to see the rate and terms you can get on a new loan. Pre-qualifying doesn’t affect your credit score, and lets you compare new loan offers with the terms on your existing loan.

  2. Consider refinancing costs. Add up the new loan’s interest and fees and compare them to your existing loan to determine whether refinancing will lower your monthly payments or save you money in the long term.

  3. Use the new loan to pay off your current loan. Some lenders transfer funds to your bank account, while others may directly pay off your first loan.

  4. Confirm the old loan is closed. Check your account to ensure there’s no balance on your first loan to avoid additional fees.

  5. Start making payments toward the new loan. Most lenders allow you to set up automatic, recurring payments from a checking account.

Lenders that allow refinancing

Some lenders allow you to refinance loans from other lenders, but not their own loans. Other lenders let you use the proceeds of a personal loan for any reason, including refinancing.

These are some lenders with the best rates and their refinance policies.

Lender

Refinances loans

Est. APR

Get started

From Upgrade or another lender.

5.44% - 35.47%

at Upgrade

Only from other lenders.

3.99% - 19.99%

at LightStream

Only from SoFi.

5.99% - 19.63%

Only from other lenders.

6.99% - 19.99%

at Marcus

Only from other lenders.

5.99% - 17.99%

on NerdWallet's secure website

From Discover or another lender.

6.99% - 24.99%

at Discover

From Wells Fargo or another lender.

5.74% - 24.24%

on NerdWallet's secure website

Only from other lenders.

5.99% - 29.99%

at Best Egg

When refinancing is a good idea

Your credit has improved or you’ve paid off other debts. Borrowers with good or excellent credit (690 or higher FICO) and a low debt-to-income ratio typically receive the lowest personal loan rates. If you’ve consistently made loan payments on time and your credit score has grown, then you may receive a lower rate on a new loan and refinancing could save you money.

You need lower payments. Refinancing can extend your repayment term, lowering your monthly payment and leaving more room in your budget. You can use the extra cash to repay higher-cost debts or build your savings.

You want to pay off the loan faster. If higher monthly payments fit into your budget, you can refinance to a shorter-term loan to reduce your total interest costs and clear the debt sooner.

This strategy works best if your existing loan carries a long repayment term and you can get a better rate.

Pros and cons of refinancing

Pros

Lower APR: If your credit, income or debt-to-income ratio has improved since you took out the original loan, you may be able to get a lower annual percentage rate on the new loan.

Shorter repayment period: If you can afford a higher monthly payment, refinancing to a shorter-term loan will reduce overall interest costs and get you out of debt faster.

Cons

A longer term can mean more interest: Unless you receive a lower APR on a new loan, refinancing to a longer repayment period increases your total interest costs and leaves you in debt longer. If you’re struggling to make your payments, your lender may let you temporarily pause, or defer, them.

Origination fees: Even if you refinance your loan with the same lender, you may have to pay an origination fee, which can be 1% to 10% of the loan amount. If you have this extra fee, make sure the amount you’ll get after the lender takes a cut is enough to fully refinance your loan.

Frequently asked questions

Any time you apply for a personal loan, including to refinance, you may see a small, temporary dip in your credit score. As long as you make your full monthly payments on time, refinancing shouldn't have a long-term effect on your credit score.

It’s best to refinance a personal loan if you can qualify for a lower rate — if your credit has improved or you’ve lowered your debt-to-income ratio, for example. Refinancing can also lower your monthly payment to make room in your budget, or increase your monthly payment so you can pay off the loan faster.

You can refinance your Discover personal loan with Discover or another lender. Typically, you refinance a personal loan to get a lower APR, lower your monthly payments or pay off the loan faster.

You can refinance a SoFi personal loan with SoFi. Its personal loan rates are low compared with most other lenders and it doesn't charge an origination fee.

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