Can You Refinance a Personal Loan?

When you refinance a Personal Loan, you’re essentially applying for a new loan to replace your current one. If you refinance with the same lender, they typically apply the amount from the new loan directly to the existing one, paying off the previous debt for you.

In some cases, you might refinance a personal loan for a greater amount than what you owe on the original loan. If so, the lender will give you a payout for the difference, usually in the form of cash, check, or direct deposit.

Once you’ve refinanced an old loan, you’ll start making payments on the new loan, which may have a new interest rate, terms, and payment amounts.

How to refinance a Personal Loan

If you’d like to refinance a Personal Loan, follow these steps:

1. Research lenders

   While it may be tempting to refinance with your current lender, you might be able to find a better offer elsewhere. Shop around to learn which banks, credit unions, and online lenders offer refinancing. Then, compare the rates, terms, and fees of each refinancing option.

2. Choose an offer and gather documents

   Once you choose the right refinance offer for your goals, collect the documents you’ll need to apply. Many lenders will ask for a government-issued ID like a driver’s license and passport, along with pay stubs and tax forms.

3. Apply

   Fill out the refinancing application online or in person at a lender near you. You’ll need to share personal details like your name, email, and phone number, and will also have to provide information on your current loan.

4. Wait for approval

   You’ll need to wait until the lender reviews your application and gets back to you with a decision. At Advance America, you’ll typically know within minutes of submitting your application whether you’re approved.

5. Start making payments on your new loan

   After you’re approved for refinancing and use the funds to pay off your current loan, you’ll want to review your repayment plan. Remember, refinancing a Personal Loan only pays off if you diligently make on-time payments towards the new loan.

What types of Personal Loans can be refinanced?

Payday Loans

Payday Loans are short-term, small-dollar loans you pay back when you receive your next paycheck, usually in two to four weeks. These Personal Loans can provide fast cash to cover expenses until you get paid.

If you can't afford to repay your Payday Loan as expected, you might be able to refinance it to avoid costly fees and penalties.

Installment Loans

With an Installment Loan, you’ll get a sum of money at once and repay it over time via fixed monthly payments or installments. Your repayment schedule for this Personal Loan may be anywhere from a few months to several years, depending on the loan terms.

Title loans

Car title loans are secured personal loans that use your car as collateral. Upon approval, you’ll give the lender your title in exchange for a lump sum of money based on how much your car is worth. However, if you can't repay the loan when it's due, the lender will keep your car in exchange.

If you can't repay your title loan and don't want to lose your car, you may be able to refinance it.

Mortgages

Mortgages are loans designed to help you cover the high cost of a house, condo, or other property. In many cases, you’ll repay your mortgage in 15, 20, or 30 years. Unless you have hundreds of thousands of dollars in your bank account, you'll likely need to apply for a mortgage to purchase a home.

It’s no secret that mortgage rates and terms are volatile, and there's a chance you might close on your home when rates are high, resulting in a larger monthly payment. If that's the case, you might be able to refinance your mortgage.

Student loans

Student loans are one of the most refinanced personal loans because people are likely to have many different types of student loans. Because each of these loans can have different interest rates and repayment periods, paying them off individually is complicated and expensive. By refinancing them, you may be able to get a lower rate and more favorable repayment terms.

Benefits of refinancing a Personal Loan

There are a few advantages to refinancing an existing Personal Loan:

You could get a lower interest rate

The biggest potential advantage of refinancing a Personal Loan is that you may lock in a lower interest rate. This is particularly true with larger loans like mortgages and student loans.

The key to getting a lower interest rate is to improve your credit score so that you qualify for better rates. Once you do, you could save hundreds or thousands of dollars through refinancing.

You could get a shorter repayment period

Another way to save money through refinancing is by reducing your repayment period with a new loan. Your financial situation may have changed, allowing you to make larger payments. If your current loan has pre-payment penalties, refinancing is a great option and could save you hundreds!

Make monthly payments more manageable

On the other hand, it's also possible that you need to lower your monthly payments. If that's the case, refinancing can lengthen your loan term, resulting in smaller monthly payments that are easier to budget.

Make it easier to keep track of your loans

Finally, refinancing is a great option if you're currently paying off more than one loan. For instance, let's say you have a student loan, a car loan, and credit card debt. Rather than making small monthly payments on each loan, you can refinance and use the new loan to pay off all your current debt. This way, you only need to keep track of one loan.

When to refinance a Personal Loan

Here are some instances where it may make sense to refinance your Personal Loan:

You can’t afford your current monthly payments

If your payments on your current loan are too high, you might consider refinancing to get a longer repayment term. You’ll be extending the number of payments (and likely increasing your total debt), but you’ll pay less each month.

Your credit has improved

If you’ve been working on boosting your credit score since you initially took out a loan, refinancing may get you better rates and terms.

You want to repay your loan faster

Refinancing to a loan with a shorter term and higher monthly payments can help you pay off your debt faster. You’ll also pay less interest overall.

You need extra cash

Depending on the type of loan you currently have, you might be able to refinance and get some extra money to cover bills, groceries, and other expenses. As with any loan, it’s important to be smart about your financing options and only apply for a refinance when it makes sense to do so.

Refinancing Personal Loans with Advance America Advance

America offers refinancing options for our Payday Loans and Installment Loans (in select states). Simply fill out an application online or in-store and review your new loan offer in minutes!