When and 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.
Ronita Choudhuri-Wade
Annie Millerbernd
By Annie Millerbernd and  Ronita Choudhuri-Wade 
Edited by Kim Lowe

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Refinancing a personal loan can help you save money on interest or lower your monthly payments.

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

What does it mean to refinance a personal loan?

When you refinance a personal loan, you replace your existing loan with a new one, either from your current lender or a different one. You use the funds from the new loan to pay off the existing loan, and then you make monthly payments toward the new one.

Refinancing makes the most sense when the interest rate or monthly payments are lower than your current loan.

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 it 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. Submit a new loan application. Complete a formal application with the new lender and provide any documents it may need to verify your details and income. The lender will run a hard credit check, which will cause your credit score to dip a few points. 

  4. 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.

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

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

See if you pre-qualify for a personal loan – without affecting your credit score
Just answer a few questions to get personalized rate estimates from multiple lenders.

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.

Here are seven lenders’ refinancing policies.


Refinances loans

Est. APR

NerdWallet rating 

on Upgrade's website

From Upgrade or another lender.

8.49% - 35.99%.

NerdWallet rating 

on LightStream's website

Only from other lenders.

7.99% - 25.49%.

NerdWallet rating 

on SoFi's website

Only from SoFi.

8.99% - 25.81%.

PenFed Credit Union Personal Loan
NerdWallet rating 
See my rates

on NerdWallet's secure website

Only from other lenders.

7.74% - 17.99%.

NerdWallet rating 

on Discover's website

From Discover or another lender.

7.99% - 24.99%.

Wells Fargo Personal Loan
NerdWallet rating 
See my rates

on NerdWallet's secure website

From Wells Fargo or another lender.

7.49% - 23.74%.

NerdWallet rating 

on Best Egg's website

Only from other lenders.

8.99% - 35.99%.

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) 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.

When you should wait to refinance a personal loan

You can’t get a lower rate. It can be difficult to qualify for a better rate on a new loan if your credit score has decreased. Paying off other debts and making on-time payments can help build your score back up. If you are refinancing to lower your monthly payments by extending your loan term, note that you are likely to pay more in interest over time.

You may pay additional fees. A new loan may come with an origination fee, typically 1%-10%, which can offset any potential savings on interest.

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 it can increase your monthly payment so you can pay off the loan faster.

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