Personal loans can make your financial life easier.
You can use them to consolidate debt, make home improvements, cover unexpected medical costs, and more.
If you already have a personal loan, you may run into situations where you want to refinance. You may need a lower monthly payment, or you may want to see if you can get a lower interest rate.
Can you refinance a personal loan?
Review the information below to find out.
Can You Refinance a Personal Loan?
You absolutely can refinance a personal loan.
The process to refinance your loan is very similar to the process you used to get your personal loan in the first place. You will need to apply for a new loan that is the same or more than the balance of your current loan.
Your current personal loan will influence your refinance possibilities. This is because your current loan will impact your credit score and credit history, which many lenders review when they are considering whether or not to approve you for a new loan.
If you’ve gotten behind on your payments on your personal loan, it may make getting a new loan more difficult. It’s not impossible though, and many lenders are willing to work with people who have less-than-perfect credit.
Before you apply for a new loan, you need to determine whether refinancing a loan is right for you and your situation.
Decide if Refinancing is Right for You
Several situations might lead you to want to refinance a loan.
Your credit may have improved, so you want to see if you can get a better interest rate.
You may have new bills that you want to consolidate into one loan.
You may want to make higher monthly payments so you can pay off your loan faster.
Some of the perks of refinancing a loan include saving money, potentially getting a lower interest rate, or shortening how long you have to pay back your loan.
You may be able to qualify for a higher loan, so you can consolidate other bills or get a loan with better terms.
For example, if your current loan has a variable rate, you may want to look for one that has a fixed rate. A fixed rate loan makes your payments predictable from month to month. With a variable interest rate, your monthly payment amount may change.
You may not want to refinance if your credit situation isn’t as good as it was when you started. There are some strategies you can use to compensate for a poor credit score, though.
Check Your Credit
If a personal loan refinance is right for you, you will want to check your credit reports before you start contacting lenders.
You are entitled to one free credit report per year from each of the major credit bureaus. The three major credit reporting agencies are TransUnion, Experian, and Equifax.
You may need to pay if you want to find out your credit score. Most lenders use a combination of your credit score and credit history to decide about whether to approve you for a loan. Your credit history can also impact the amount of your loan and the terms of your loan.
The better your credit score is, the more likely you are to get approved for a personal loan to refinance your current loan. If your credit isn’t great, though, you may still have options available, so don’t lose hope.
Improve Your Credit
Once you know your credit situation, you can take steps to improve your credit before you apply for a loan.
Be cautious about using services that promise to repair your credit. You can take steps to improve your credit on your own without paying for a service.
To improve your credit, you should take the time to review each of your credit reports carefully. Don’t assume that if one report is fine, the other ones are too. Each company is separate and collects information on its own, so it’s possible for there to be a mistake on one report that doesn’t show up on the others.
If you see any inaccuracies, contact the credit reporting agency in writing. Let them know the issue. Credit reporting agencies are required to investigate inaccuracies and provide you with results in writing.
If you’ve been having trouble making payments with one of your creditors, contact them to work out a payment plan. Many lenders are willing to be flexible.
If you can, you may want to pay down your credit balances. If you’ve maxed out your credit cards, it has a negative impact on your credit score.
Ultimately, it’s up to you whether you want to improve your credit before applying for a personal loan refinance. Even if your credit isn’t perfect, you can often find lenders who will work with you and your situation.
Get Quotes from Lenders
Once you know your credit situation, it’s time to get quotes from lenders.
Before you get quotes, you should have a sense of how much you can afford to pay each month as well as the amount of the loan you want.
You can contact lenders individually. A more efficient option, though, is contacting a site like ours. At Bonsai Finance, we help you find a lender. You complete a simple form and lenders analyze your information and provide you with quotes.
Once you have quotes from lenders, you will want to review each quote carefully. Make sure you’re clear on the amount of the loan being offered, your interest rate, your monthly payment, and how long you will be paying on the loan.
Don’t be afraid to ask your lender questions if things are unclear. You may want to ask if there are any penalties for paying off your loan early, for example.
You should also ask if there are any hidden fees. Some lenders have an application fee, an origination fee, and other ongoing fees.
If you’re not happy with the quotes you receive, you have a couple of options. One is to find a co-signer.
A co-signer is someone who applies for a loan with you. Lenders look at their credit situation as well as yours when deciding about your loan. If your co-signer has better credit, you may be able to qualify for higher loan rates and better interest rates.
Co-signing is a bit commitment, though. If you’re unable to pay, your co-signer will become responsible for making your loan payments. Make sure you’re confident you will be able to make your payments before bringing on a co-signer.
Another option if you’re not happy with your loan options is to contact your current lender. Your lender may be willing to work with you to change your loan terms.
Apply for a Loan
Once you have an offer you’re happy with, the next step in how to refinance a loan is to complete the application.
When you get an initial quote from a lender, you typically provide rough information about your income. When you complete the application, you will need to show documentation of your income. This may include pay stubs or a recent tax return.
Make sure to fill out your application completely. You may need to provide proof of your identity, like a driver’s license.
After you complete the loan application, the lender will make a final decision regarding your loan. They will notify you about their decision, and you can decide whether or not to accept their offer.
Once you accept a loan, complete any required forms and return them to the lender. Double check to make sure you’re clear on the terms on the loan. Make sure to keep a copy of any documents you sign.
After you’ve completed the paperwork, your lender will send you the funds. They may be able to send the funds electronically to a bank account, or they may send a paper check.
Pay Off Previous Loan
Once you’ve received your funds, you should pay off your old loan with the new loan.
Follow-up with the loan to make sure your funds are applied. You should get written confirmation that the loan is paid in full. Keep your written confirmation for your records.
The next time you get a free credit report, review the report to make sure it reflects that your old loan is closed. If there are inaccuracies, report them to the credit reporting agency with a copy of your confirmation letter.
How We Can Help
Ultimately, the answer to the question, “Can you refinance a personal loan?” depends on your situation.
In most cases, the answer is yes. At Bonsai Finance, we can help you find a preferred lender with preferred rates for your personal loan refinance.
All you need to do is complete a simple form, and then lenders will analyze your situation. If your request is approved, you can move forward with a loan that better fits your needs and situation.
You can’t make an informed decision about refinancing, though, without information from lenders. Visit us today to find a great solution for your personal loan refinancing needs.