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If you are having trouble making payments on a personal loan, you may be able to refinance with a new loan with a lower rate or smaller monthly payments.
Here's what to know about refinancing a personal loan, including how it works, the benefits and drawbacks and whether it might be the right move for you.
Refinancing means replacing an existing loan with a new loan with different terms, often a lower interest rate or a different repayment period or loan structure.
Refinancing is well-known in the mortgage and student loan space, but it can also be done for personal loans. People refinance for different reasons, including:
Refinancing to a longer repayment period can shrink your monthly bill, but it usually means paying more in interest over the life of the loan.
You may be able to refinance with your existing lender or work with a new one. In either case, there may be fees, so factor that into whether a new loan is the right financial choice.
Best Egg allows borrowers to refinance both secured and unsecured loans. Your original loan must be in good standing, with a positive payment history, and the combined balances can't exceed $100,000.
Homeowners can secure their loan with fixtures rather than the house itself. According to Best Egg, securing your loan can lower your APR by 20%.
See if you're pre-approved for a personal loan offer.
6.99%–35.99% (5.99%–29.99% for secured loans)
Best Egg has competitive APRs for borrowers with good credit or homeowners interested in a secured loan. But origination fees can be high and it doesn't offer many other financial services.
*The Best Egg Secured Loan is a personal loan secured using a lien against fixtures permanently attached to your home such as built-in cabinets, light fixtures, and bathroom vanities. Rest assured, your home itself will not be used as collateral.
You can use a loan from PenFed Credit Union to refinance. With APRs capped at 17.99% and no origination fee, you're more likely to save on the overall cost of borrowing.
PenFed approves borrowers for as little as $600, making it a good option if you don't have a large balance to refinance.
A smart option for borrowers with good credit.
PenFed caps APRs at 17.99%, with funds available as early as the next business day. Credt union membership only requires a $5 deposit.
Borrowers with good-to-excellent credit who want competitive rates and no upfront fees should consider PenFed. Its $50,000 loan cap means it might not be the right lender for larger expenses.
If you're ready to refinance, follow these steps.
You're in a better position to refinance if your credit score has improved since you took out your original loan. Review your score and check your credit reports for any errors or signs of fraud.
Also, confirm how much of the balance you're paying off. Factor in any loan fees when you're deciding how much money to request, to help decide whether it's worth refinancing.
Most lenders will let you prequalify to get an estimate of the rates, terms and loan amounts you may qualify for. You can then use that information to compare offers from other lenders to find the right one.
You'll need to provide some personal details — including your Social Security number, date of birth, income — as well as the loan amount and intended purpose. Prequalification only involves a soft credit inquiry, so it won't impact your credit score.
Prequalification is a useful tool, but it's not a guarantee of approval.
Once you find the right lender, it's time to complete a formal application. You may need to provide some additional documentation, including a government-issued ID, bank statements and recent paystubs.
Many lenders boast an application process that takes just a few minutes and you may get an approval decision the same day, but timelines can vary.
Most lenders allow personal loan funds to be used for almost any purpose, including paying off another loan, but confirm before applying.
If you are approved, look over the new loan agreement and make sure you approve of the terms before you sign. This process will trigger a hard credit inquiry, which can result in your credit score dropping a few points, so make sure this is the lender you want.
Most lenders fund loans within one or two days of approval, and many advertise same-day deposits if you sign early enough in the day. If you are refinancing as part of a debt consolidation strategy, the lender may be willing to send payment directly to your original lender. Otherwise the money will be deposited into your account and you'll use it to pay off your original loan.
Either way, you'll want to get a paid-in-full letter to confirm the old loan has been paid off completely.
The due date for the first payment on your new loan will be listed on your loan agreement, but it's typically within 30 days of funding.
Refinancing isn't right for everyone. Before you make a decision, consider the following:
If you want to change your rate or terms, refinancing isn't the only option.
If you have numerous personal loans, you can use a debt consolidation loan to roll them into one monthly payment with a lower blended APR. The concept is the same as refinancing, but you're streamlining multiple payments into one.
You can also roll in high-interest credit card bills into a debt consolidation loan. Upstart approves debt consolidation loans for as little as $1,000 and considers factors beyond credit scores for approval, including work experience and education.
Designed for applicants with low or no credit score.
Upstart considers applicants with FICO Scores of 300 (the lowest possible) and those with insufficient credit history.
We like that Upstart considers factors besides credit score, including education, income and employment history. However, co-signers aren't accepted.
You can use a home equity loan to pay off an existing personal loan. It's a second mortgage that leverages the equity in your home to secure a lump sum of money.
Because they use your house as collateral, home equity loans often have lower interest rates and longer repayment terms than personal loans. Keep in mind, however, that you are likely replacing an unsecured loan with one that puts your home at risk of foreclosure if you fail to make payment.
Rocket Mortgage offers fixed-rate home equity loans between $45,000 and $500,000, making it a good option if you have a lot of loans to pay off. It's known for exceptional customer service and having an easy-to-use digital interface.
Available in all 50 U.S. states and Washington, D.C.
If you are having trouble making your loan payments, it may be time to consider a debt settlement company. They work with creditors, including personal loan lenders, to accept less than the full balance owed.
They can only work on unsecured debt, so if your loan is secured with collateral, it won't be eligible.
Many debt settlement companies require clients to have minimums of $7,500 or $10,000, but Accredited Debt Relief only requires a debt load of $5,000, and it operates in all 50 states.
Settlement fee averages 15% to 25% of enrolled debt, depending on the state.
Options and evaluations in all 50 states and Washington, D.C.
Started in 2011, Accredited Debt Relief has helped resolve over $15 billion in debt.
Read our review of Accredited Debt Relief
Refinancing replaces one existing loan with a new loan with better terms, such as a lower interest rate or a different repayment length. Debt consolidation combines several debts, such as personal loans or credit card bills, into one monthly payment — often with a new personal loan or balance transfer credit card.
In both cases, the goal is to save money while you pay back your debt.
Refinancing works best when you can get a lower interest rate, which is harder if you have a lower credit score. You may want to work on improving your credit before applying or see if you can find a lender that accepts co-borrowers or secured loans.
Refinancing a personal loan may cause a temporary drop in your credit score because the lender will likely perform a hard credit inquiry. However, making on-time monthly payments on the new loan should improve your score over time.
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