If you’re like most people, you’ve probably gotten a note from a bank in the last few months asking if you’d like to take out a loan. These mailers have become 41% more common as lenders try to take advantage of the growing number of consumers interested in loan products.
While most people go to banks or search online to take out a new personal loan, some people engage with lenders for the purpose of refinancing their existing loan debt.
Don’t know what it means to refinance a personal loan no credit check?
In this article, we dive deep into the pros and cons of the refinance personal loan process so you can make an informed decision as to whether or not it’s a right for you.
What is a Personal Loan?
All of those loan products often make it so people aren’t sure if the loan they’re carrying is considered a traditional personal loan.
In general, the term personal loan is used to describe a short-term loan product that is anywhere from a few hundred to a few thousand dollars. These loans do not come with spending contingencies attached to them as car or home loans do.
Personal loans can be used for anything from home maintenance to vacations and beyond.
What Does it Mean to Refinance?
Refinancing is the process in which borrowers move their debt from one lender to another. When this occurs, the new lender pays the original lender all of the money they’re due from the borrower, removing the original lender from the equation.
The new lender then begins to receive monthly payments on the debt the borrower now owes them.
Refinancing is usually a win for borrowers and new lenders and a loss for original lenders.
The original lender no longer gets to collect interest payments from their borrower which means less money in their pocket. Instead, the new lender gets to take over interest collection.
As a reward to the borrower for switching lenders, new lenders give borrowers better terms surrounding their loan.
Why Do People Refinance Their Personal Loans?
Now that you know what a personal loan is and what it means to refinance, you may be wondering why thousands of people refinance their loan debt every year.
There are a few key refinance personal loan motivators which include:
Borrowers are Unhappy With Their Current Lender
A lot of borrower/lender relationships start out good but then sour. Borrowers may not appreciate their lender’s lack of flexibility or poor customer service, for example.
In these cases, borrowers moving their debt to another lender is a way to no longer do business with the lender they’re dissatisfied with.
Borrowers are Looking to Reduce Fees
Personal loans are notorious for the number of fees they can carry. Late payment fees, early payment fees, origination fees… The list goes on.
Or perhaps a customer took out a payday loan no credit check and they are looking to lower their interest rates with a longer term loan.
If a borrower finds an alternative lender that has fewer fees and/or charges less for the fees that they do have, it could be beneficial to refinance.
Borrowers Qualify For a Better Interest Rate
The longer you manage your debt responsibly, the better your credit score becomes. This is especially true when you start out with a bad credit loan from a lender who reports your good behavior to the credit rating agencies.
Many times borrowers find that their credit improves during the process of paying down a high-interest loan so dramatically that they can refinance with a lender that offers much better rates.
Refinancing for a better interest rate could mean saving thousands of dollars over the life of a loan.
Where Can Borrowers Find Places to Refinance?
Given the benefits of the refinance personal loan process, borrowers are constantly on the lookout for a better lender to move their debt to. This searching process can be an easy one if you have excellent credit and a hard one if your credit is considered sub-prime.
No matter your credit situation, there are a handful of strategies you can employ to see if you can refinance your debt.
Visit a Bank
Chances are, you have a big-name bank within driving distance of your house. Even if you don’t have an existing account with the bank nearest you, most will be happy to assess whether or not they can refinance your debt.
As a matter of fact, some bankers get commissions just for helping you fill out an application.
Banks have different standards when it comes to loans that they will and won’t refinance. Because of that, you might need to talk to multiple banks to find one that’s willing to help.
Visit a Credit Union
Credit unions are not-for-profit money service providers that are flexible when it comes to offering financial help to members.
If you can get a credit union to refinance your personal loan, you may enjoy much better interest rates than you would with a traditional bank.
There is no better place to find a high volume of lenders than on the internet. Literally, thousands of businesses are ready to consider your refinance personal loan request, right now.
The downside with online lenders is that sorting through all of your options can be cumbersome given the volume. Also, not all online lenders are created equal.
Some will offer too good to be true deals that turn out to be predatory and even illegal in some states.
We recommend using our loan finding tools on Bonsai Finance to help you easily find personal loan lenders that might be a fit for your financial needs.
Talk to Friends and Family
If you have friends and family members who are willing to take on your debt, consider asking them for help.
While mixing money with family can be troublesome, you’ll probably enjoy little to no interest and fees dealing with someone you know.
When Should You Refinance and When Should You Stick It Out?
Is there a downside to the refinance personal loan process? Honestly, drawbacks are few and far between.
Refinancing is almost always done at the benefit of the borrower. If you can find a lender that’s willing to take on your debt and is going to offer you better terms for the privilege, say yes.
As is the case with all things though, there are some potential pitfalls you might fall into when you refinance. Here are a few of them:
You Could End Up Paying Steep Fees
Fees are most common when you’re refinancing a mortgage (closing costs) but they can also pop up in the refinance personal loan process.
Watch out specifically for balance transfer fees and origination fees. Also, watch out for any early payment fees your original lender might impose.
When in doubt, ask lenders directly what fees you should know about prior to refinancing your debt.
Learning a New System
While your original lender may not be perfect, you at least know what to expect from them. You know how to pay your bill, who to call when you have trouble, and who to complain to when you’re upset.
There’s a popular saying that goes, “The devil you know is better than the devil you don’t.”
Learning a new system can uncover new complications that may make you regret switching over.
Every lender has their quirks.
Most of these quirks can be brought to light by reading carefully and asking questions. Others you’ll find out about as you go.
If your current lender is tolerable and a new lender is trying to lure you away from them with a nominally better situation, it might be best to stay put.
Transitions can cause headaches and saving a couple of dollars per month may not be worth the trouble.
Wrapping Up When, Where, Why, and How to Go Through the Refinance Personal Loan Process
We’ve just gone over everything worth knowing about the refinance personal loan process. If you’re sold on the idea of refinancing your no credit check debt, find a lender that offers refinancing, fill out an application, and complete the process.
Just be sure to always do your diligence when working with a new lender, particularly online. Reading reviews and calling your lender directly to ask any questions you may have can save you a lot of trouble later on.
Want to find reputable personal loan lenders now? Our tools at Bonsai Finance make the process easy.
With a couple of clicks, you’ll be presented with tons of lenders you can submit applications to.
Get your debt refinanced today and learn more about money management in our learning center! Here are some other articles you might find interesting: