How to Refinance a Personal Loan
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Everyone wants to live a debt-free life but finding ways to make that happen can be challenging. How do you streamline your loan payments without compromising too much of your lifestyle? If you’re struggling with this question, deciding to refinance personal loan payments might be the right option for you.
What does it mean to refinance a loan? When you refinance a loan, you switch the debt obligation you already have with something that offers better terms and lower premiums. This allows you to change your loan to secure a different term length, a more convenient payment structure, or a lower monthly payment.
Choosing to refinance your loan can save you a lot of cash if you’re willing to do your research. Below, we look at when it makes sense to refinance a personal loan, the pros, and cons of using this financial strategy, and how to replace your existing loan with a new one.
When to Refinance a Personal Loan
If you’re wondering, “When should I refinance my loan?” you won’t find a one-size-fits-all answer. Ideally, your circumstances will help you determine when is the right time to consider loan refinancing. That said, there a few signs that may indicate you’re ready to refinance your loan, such as:
- Your credit rating has improved: If you’ve seen a significant increase in your credit rating lately, you may be able to get a better deal from a refinance loan lender. The best deals are often reserved for people with the highest credit scores.
- You’re looking for lower payments: If you’re currently low on cash, refinancing is an excellent way to cut costs. You can usually extend your payment term and spread out the costs to help manage your budget.
- You want to get rid of the loan: If your financial situation has improved, then you could refinance your loan into a shorter term. This means you get rid of your debt faster.
- You want a different kind of loan: If you’ve been using a fixed rate up to now, you may decide to switch to something variable or vice versa. Choosing to refinance personal loan payments can allow you to access different types of lending.
Refinancing Personal Loans Advantages
Deciding to refinance your loan means considering all the positives and negatives carefully. Make sure you understand the answer to the question: “what does refinance mean” first. Notably, you’re taking out a different loan to cover the costs of the original one, not just updating your loan with the same provider. There are a few benefits to doing this, such as:
- Improved interest rates: You may be able to get a better deal and improve your interest fees if your credit rating has improved or your income has increased.
- Reduced monthly repayments: If you’re asking, “can I refinance a personal loan?” because you’re low on cash, this strategy could reduce your monthly costs.
- Minimizing the number of payments: Replacing a more extended repayment period like 24 months with a shorter one, such as 12 months, could allow you to get rid of debt faster.
- Change your loan type: You could choose a different kind of loan with a fixed repayment schedule. You might even be able to ask, “Can I borrow more money on an existing loan?” and hear a resounding “yes.”
Refinancing Personal Loans Disadvantages
When you decide to refinance personal loan agreements, you should consider certain disadvantages:
- More interest: If you spread your loan out over a longer term, you’ll usually pay more interest overall. Plus, you’re in debt for a longer period of time.
- Origination fees: Some lenders charge fees for when you switch to a new loan. These costs could even outweigh the benefits of the savings with a new loan.
- Prepayment penalties: If you pay all your loans off at once to get a new one, you may have an early payment penalty to pay.
While many people benefit from refinancing their personal loans, some individuals may require alternative options depending on their debt and financial situation.
How to Refinance a Personal Loan
So, what is refinancing a loan, and how do you do it successfully?
Refinancing your loan means taking out a new loan to pay the costs of your existing loan. Just like you would with any financial solution, it’s important to shop around to make sure that you’re getting the best deal.
Before you jump in, remember that this process can be complicated. Can you refinance a personal loan? For instance, do you have any early payment fees to consider, or do you have a poor credit score? Depending on their financial situation, some individuals won’t qualify for loan refinancing.
When you think it’s time to start shopping, consider taking the following measures:
- Compare your options: See what’s available on the market to get the right deal. Look for the best payoff period and feasible monthly repayments.
- Pre-qualify: Try to pre-qualify for your loan with multiple lenders to see what kind of rates and terms you can expect.
- Consider costs: Look at the costs associated with refinancing your loan and ensure that the fees don’t outweigh the benefits.
- Use your new loan to pay off your current loan: Ensure you fully pay off the old loan with the money from your refinancing loan.
- Close the old loan: Check your loan account to ensure that there’s no balance or fees that you still need to address.
- Start making payments: Pay off your loan according to the terms you agreed with your provider.
Is it Time to Refinance Your Loan?
Hopefully, this article has answered the question: what does refinancing a loan mean, and how it can help improve your financial situation. If you’ve already decided that it’s time to refinance personal loan payments that are dragging you down, contact Tower Loan to get the best personal loan rates. We have specialists who are ready to work with you to secure the best online loan options available.