Refinancing refers to taking out a new loan to replace an existing loan. You may have heard about people refinancing their mortgages, for example, to get a better deal when interest rates go down.
But, what about other types of loans? Can you refinance a personal loan?
It’s definitely possible to refinance a personal loan, and it’s easier to do than you may think. If you are approved, you could replace your old loan with a new one in just a few days.
Why Refinance a Personal Loan?
There are several important benefits to consider when refinancing a personal loan. By refinancing, you can either save money or have more favorable loan repayment terms.
Get a Better Interest Rate
Personal loans have fixed interest rates, which means the rate you will pay is locked in when the loan is issued. But interest rates constantly change.
If you still have several years left to repay a personal loan and interest rates have gone down since your loan was issued, you may be able to save money on interest by refinancing and locking in a new low rate.
Pay Off Your Loan Faster
Some people refinance personal loans to pay them off faster. The quicker you repay a loan, the less money you will have to pay in interest.
Some people also want to repay debt more quickly to help them qualify for another type of loan, like a mortgage. If you are carrying a lot of debt when you apply for a mortgage, there is a chance that you may be denied.
Lower Your Monthly Payments
Another reason why many consider refinancing is to lower their monthly payments. To accomplish this, the new loan will have a longer term than the one it is replacing.
An important negative of this to consider is that you will pay more in interest over the life of the loan. Still, refinancing to lower your monthly payments is preferable to taking a hit to your credit score if money is tight and you are having trouble making your monthly loan payments.
How Do You Refinance a Personal Loan?
Refinancing a personal loan is quick and easy, and most lenders now give you the option of applying in person, online, or by phone. Within a few short days, you could have a new loan to replace your old one with better terms.
1. Find Out If Your Current Loan Has a Prepayment Penalty
It may not be beneficial to refinance a loan if you have to pay a penalty to pay it off early. Be sure to review your loan documentation before applying for a new loan to ensure there won’t be any problems.
2. Check Your Credit Score
It’s important to make sure your credit score is in good shape before you apply for a new loan. Credit scores change over time, and if your score has recently declined, you can take steps to improve it before refinancing.
3. Shop Around
Different lenders will have different loan terms to consider. Some lenders charge more fees than others, for example. Because of this, it’s important to research your options before choosing a lender.
4. Prequalify and Compare Offers
If you talk to more than one lender, see if they will pre-qualify you for a loan first. By prequalifying, you will know the interest rate each lender will charge, their fees, and other factors. This enables you to compare offers to find the best deal. When lenders pre-qualify you for a loan, a soft credit check will be done. Soft credit checks do not harm your credit score.
5. Apply for a New Personal Loan
After you have selected a lender, you will then submit a formal application. Although personal loans can be used for many different purposes, be sure to tell your lender that you are refinancing an existing loan. You may be able to take advantage of a special promotion by doing so. If you are approved, you can expect to receive the funds within 1-7 days.
6. Pay Off Your First Loan
After you have received the funds from your new loan, you can use the money to repay your first loan in full. You will then make monthly payments on your new loan and enjoy a better interest rate or better loan terms.
There’s Never Been a Better Time to Refinance
If you have a personal loan and you are thinking about refinancing, TEG Federal Credit Union can help you save on interest with our low rates. It doesn’t cost anything to apply, and terms of up to 60 months are available.
But, it gets even better. If you have a personal loan with another lender and you refinance $15,000 or more with TEGFCU between January 1, 2022 and February 28, 2022, you’ll receive a $350 bonus that will be applied towards paying off your new loan.
Applying to refinance a personal loan with TEGFCU is simple. You can get started online or visit one of our branches to do it in person. And if you have any questions, one of our representatives is just a phone call away.
Our interest rates are also competitive. Click below to learn more about our rates and to see how they compare with your current loan.