Can You Refinance a Personal Loan? What You Should Know

Yes, you can refinance a personal loan, either with your current lender or a new one.

Refinancing replaces your existing loan with a new one, ideally at a lower rate, a smaller monthly payment or a different term that better fits your finances, though running the break-even math first is the only way to know if it's actually worth it.

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Key Takeaways

• Refinancing swaps your current loan for a new one, ideally at a lower rate, smaller payment or different term, and most lenders allow it with either your current provider or a new one.

• It tends to make sense when your credit or income has improved, market rates have dropped, or you want to consolidate multiple debts into one payment.

• Always run the break-even calculation first: divide total refinancing costs by your monthly savings to see how many months it takes to come out ahead.

• Watch for origination fees of 1% to 10% and any prepayment penalty on your current loan, since either can cancel out your interest savings.

• A good credit score of 670 or higher, combined with a DTI of 36% or lower, gives you the best shot at a competitive refinance rate.

Summary generated by AI, verified by MoneyLion editors

What Does It Mean to Refinance a Personal Loan?

Refinancing a personal loan means taking out a new loan to pay off your existing one. The new loan comes with its own rate, term and, potentially, fees. If the terms are better than what you have now, you save money.

People typically refinance to:

• Lock in a lower interest rate and reduce total borrowing costs.

• Lower their monthly payment by extending the repayment term.

• Shorten the term to pay off a personal loan faster.

• Consolidate multiple debts into one payment.

• Switch from a variable rate to a fixed rate for more predictable payments.

When Does It Make Sense To Refinance?

Refinance if:

• Your credit score has improved. A higher score may qualify you for a meaningfully lower APR. Even a small rate drop can save hundreds or thousands over the life of the loan.

• Market rates have dropped. If rates have fallen since you originally borrowed, refinancing lets you capture the lower rate.

• Your income has increased. Higher income can improve your debt-to-income ratio, which may help you qualify for better terms.

• You want to consolidate debt. Rolling multiple loans or balances into one new loan can simplify payments and potentially lower your overall rate.

• Your current loan has a high origination fee baked in. If you originally accepted a loan with steep fees, refinancing into a loan with no origination fee could reduce your total cost.

When Should You Not Refinance?

You may want to skip refinancing if:

• Your loan is nearly paid off. If you only have a few months of payments left, the savings from a lower rate may not outweigh the costs of opening a new loan.

• Your credit has declined. A lower score means you'd likely get a higher rate, making refinancing counterproductive.

• You're about to apply for a mortgage. The hard inquiry from a refinance application could temporarily lower your score at the worst time.

• The new loan carries fees that eat your savings. Always calculate whether the origination fee and any prepayment penalty on your current loan would cancel out your interest savings.

Before refinancing, check your current loan agreement for a prepayment penalty. If your lender charges a fee for paying off your loan early, factor that into your break-even calculation.

MoneyLion offers a service to help you find personal loan offers. Based on the information you provide, you can get matched with offers for up to $100,000 from our top providers. You can compare rates, terms and fees from different lenders and choose the best offer for you.

Will Refinancing Actually Save You Money?

Want to know if refinancing will actually benefit your situation? Use this formula:

Total refinancing costs ÷ monthly savings = break-even point (in months)

Here's a real example. Say you have $15,000 remaining on a personal loan at 16% APR with 36 months left. Your monthly payment is about $527, and you'd pay roughly $3,985 in total interest for the remainder of the loan.

You refinance to a new 36-month loan for the same $15,000 at 12% APR with a 3% origination fee, which comes to $450. Your new monthly payment would be about $498, or around $29 less per month. The total interest on the new loan comes to roughly $2,936, about $1,049 less than your current loan. Subtract the $450 origination fee, and your net savings come to about $599 over the life of the loan.

To find your break-even point, divide the $450 fee by the $29 monthly savings: about 15 to 16 months. If you plan to keep the new loan longer than that, refinancing is worth it. If you expect to pay it off sooner, the fee may not be worth the switch.

What Do You Need To Qualify?

Qualification requirements for refinancing vary by lender, but many look for:

• A good credit score: A FICO score of 670 or higher (good range) is typically needed for competitive rates, though scores of 740 or higher may unlock the best offers. Some lenders accept scores as low as 580, but rates will be higher.

• A low debt-to-income ratio: Most lenders prefer a DTI of 36% or lower, though some loan programs allow up to 50%.

• Stable income: Verifiable employment income, or, for self-employed borrowers, tax returns and bank statements that demonstrate consistent earnings.

• Documentation: Pay stubs, tax returns, bank statements and your current loan details.

Generally, the stronger your credit profile, the more likely you are to qualify for a rate that makes refinancing worthwhile.

How Do You Refinance a Personal Loan?

1. Check your current loan terms. Note your remaining balance, APR, monthly payment, remaining term and whether there's a prepayment penalty.

2. Prequalify with multiple lenders. Use soft-pull prequalification to compare personal loan offers from at least two or three lenders without affecting your credit.

3. Run the break-even calculation. Subtract any fees from your projected interest savings. If the break-even point is longer than the time you plan to hold the loan, it may not be worth it.

4. Accept the best offer and complete the application. The new lender performs a hard credit pull and verifies your income and documentation.

5. Pay off the old loan. Some lenders send funds directly to your old lender. Others deposit the money into your account, and you pay it off yourself. Confirm your old loan is fully closed and check your credit report to verify.

Can You Refinance With the Same Bank or Lender?

You may be able to refinance with the same bank or lender, as some lenders offer refinancing for existing customers.

That said, always shop around. Your current lender isn't obligated to give you the best rate, and comparing multiple offers is the most reliable way to find the lowest cost.

What Are the Pros and Cons of Refinancing?

There are both real advantages and disadvantages to keep in mind when considering refinancing.

What Are Your Alternatives to Refinancing?

If refinancing doesn't make sense, you have other options to consider:

• Extra principal payments. Paying more than the minimum each month reduces your balance faster and saves on interest, with no new application or fees.

• Balance transfer credit card. A 0% intro APR card could save more than refinancing if your balance is small enough to pay off during the promotional period.

• Debt consolidation. This combines multiple debts into one fixed payment at a potentially lower rate.

• Lender hardship assistance. If you're struggling to make payments, contact your lender. Many offer temporary rate reductions or payment deferrals.

• Home equity loan or HELOC. Borrowing against your equity typically offers lower rates, but your home becomes collateral, so make sure you understand the difference between secured and unsecured loans.

The Bottom Line

You can refinance a personal loan with your current lender or a new one, but the move only pays off if it gets you a lower rate, a smaller payment or a better term after fees. Run the break-even calculation, divide total fees by your monthly savings, before you apply, and confirm your current loan doesn't carry a prepayment penalty that changes the math.

If refinancing doesn't pencil out, extra principal payments, a balance transfer card or a lender hardship program may serve you better.

Key Terms

• Refinancing: Replacing an existing loan with a new one, ideally at a lower rate, smaller payment or different term.

• Break-even point: The number of months it takes for your interest savings to offset the fees you paid to refinance, calculated by dividing total costs by monthly savings.

• Origination fee: An upfront charge, typically 1% to 10% of the loan amount, deducted from your proceeds before you receive funds.

• Prepayment penalty: A fee some lenders charge for paying off a loan before the end of its term.

• Hard inquiry: A credit check triggered by a formal loan application that can cause a small, temporary dip in your credit score.

• Debt-to-income ratio (DTI): The percentage of your gross monthly income that goes toward debt payments, used by lenders to gauge your ability to repay.

• Soft credit pull: A credit check used for prequalification that doesn't affect your credit score.

Summary generated by AI, verified by MoneyLion editors

Sources

• Consumer Financial Protection Bureau: What Is a Prepayment Penalty?

• Consumer Financial Protection Bureau: What Is a Debt-to-Income Ratio?

• Federal Trade Commission: Refinancing Your Home

• myFICO: Credit Score Ranges

Summary generated by AI, verified by MoneyLion editors

FAQ

Here are quick answers to common questions about refinancing a personal loan:

Can you refinance a personal loan with bad credit? Refinancing with bad credit is possible, but your options may be limited and rates will likely be higher. Some lenders accept FICO scores as low as 580, though you may not see a rate improvement significant enough to justify the switch. Reviewing personal loan options for bad credit can help you set realistic expectations before you apply.

Does refinancing a personal loan hurt your credit score? Refinancing can cause a small, temporary credit score dip from the hard inquiry when you formally apply. Prequalification uses a soft pull that doesn't affect your score. Over time, on-time payments on your new loan may help your score recover.

How soon can you refinance a personal loan? There's no universal waiting period, but most lenders prefer to see a few months of on-time payment history. Refinancing too soon may not make financial sense if your credit or rates haven't changed.

How many times can you refinance a personal loan? There's no legal limit on how many times you can refinance. However, each refinance may involve fees and a hard inquiry, so it only makes sense when the math shows clear savings.

What happens to my old loan after I refinance? When you refinance, your old loan is paid off in full, either by your new lender directly or by you using the new loan proceeds. Once closed, it's reported as paid in good standing on your credit report.

Are there fees to refinance a personal loan? There may be fees to refinance a personal loan. Some lenders charge an origination fee of 1% to 10%, deducted from your proceeds. You may also face a prepayment penalty on your current loan. Some lenders charge neither, so always compare total cost across multiple offers rather than looking at APR alone.

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