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How Do I Refinance a Loan?
Are you curious about loan refinancing? When you refinance a loan, you replace an existing loan with a new one. Ideally, the new loan offers a lower interest rate and better terms, but you might also refinance to borrow more money. In some cases, refinancing might allow you to save quite a bit of money over the life of the loan.
Here’s a closer look at what it means to refinance a loan:
What is a loan refinance?
Loan refinancing allows you to replace your current loan with one that works better for your budget and needs. When you refinance, you’ll receive an updated agreement that takes the place of your previous loan agreement and terms. Depending on your new terms, refinancing might make your payments more affordable.
In cases where you refinance to borrow an additional sum of money, you might be able to extend your repayment plan, which helps keep your payments affordable.
What kind of loans can I refinance?
Refinance options vary by state, lender, and individual circumstances. In general, there are several loans you can refinance, including:
Payday Loan refinance
Payday Loans are short-term, small-dollar loans that can help you cover expenses before your next payday. You typically pay these loans back within two to four weeks when you receive your next paycheck.
If you need to refinance due to an emergency situation, you might be able to extend your repayment term for an additional fee.
Installment Loan refinance
Installment Loans give you the chance to borrow a lump sum of money at once. You then pay back the loan over a set period of time in fixed monthly payments.
Since the repayment period is longer, it’s usually easier to refinance an Installment Loan after you’ve made several payments.
Title loan refinance
A title loan is a type of secured loan that uses your car title as collateral. If you own your vehicle, meaning that you aren’t still making payments on a car loan, you can exchange your title for a lump sum of cash. You then continue driving your vehicle as you make payments. The lender will return your title once you’ve paid off the loan.
If you need extra cash before paying off your title loan, you might be able to refinance your loan through the original lender.
Student loan refinance
Student loans are designed to help you pay for higher education. Even if you haven’t established a credit history, you can take out federal student loans when you go to college or trade school. Private student loans are also available for those who qualify.
Consolidating student debt is a common step after graduation. This type of refinancing allows you to take out a single loan to pay off multiple student loans, making it easier to keep up with your payment.
Mortgage refinance
Most people need to take out a mortgage to purchase a home. Mortgages typically come with 15- or 30-year terms, allowing you to own a home without needing to come up with the money to pay for it all at once.
You might refinance a mortgage to move from a variable rate to a fixed rate, lock in a reduced interest rate, or extend your repayment terms.
What are the benefits of refinancing a loan?
Refinancing can offer many advantages, such as:
Extending your loan term
If you have the option to extend your loan term through refinancing, you may enjoy lower monthly payments that help free up your cashflow. This could be very useful if your financial situation has changed since you were originally approved for your loan.
Getting better interest rates
By refinancing, you may be able to secure a loan with a lower interest rate, especially if you have better credit and more income than when you initially applied for the loan. A lower interest rate could save you a lot of money in the long run.
Paying off your loan faster
Since refinancing can help you lock in a lower interest rate and lower payments, you may be able to pay off your loan faster. This can help reduce or get rid of your debt and alleviate some financial stress.
Borrowing a larger loan amount
If you weren’t approved for the loan amount you originally wanted, refinancing may help you access extra cash. If you’ve consistently made payments and improved your credit, you may now be able to borrow more money to meet your needs.
What do I need to know before refinancing a loan?
There may be additional costs associated with refinancing mortgages, car loans, and personal loans. Depending on the kind of loan you want to refinance, a lender may treat the refinance like a new loan and require you to pay a new origination fee. Be sure to ask the lender about all refinancing fees to avoid surprises.
How do I know if I should refinance?
It depends on why you want to refinance.
If you’ve experienced a drop in your income or seen an increase in your monthly expenses, then you may need lower loan payments. A loan refinance to extend your repayment terms and reduce your payment amount can help you avoid missing payments.
Pay attention to interest rates if your goal is to save money over the lifetime of your loan. If the current interest rate for the kind of loan you have is at least 1% lower than your loan’s interest rate, you might want to refinance.
How do I refinance my loan?
Every lender is different, but in general, here’s what you need to do to refinance an existing loan:
1. Check your credit score
First, see whether your credit score has improved since you took out the loan. You can receive a free credit report from any of the credit bureaus and it won’t lower your credit score. If your score has improved, you might qualify for better rates.
2. Research lenders
Before you refinance a loan, do some research to find lenders that may be able to help you. Read their Google reviews and look for them on Trustpilot to see their ratings.
For over 25 years, Advance America has been a trusted lender serving hardworking borrowers across the country – and we have an overall 4.8-star rating on Trustpilot to show for it. We offer a variety of personal loans, including refinances, to meet your financial needs.
3. Compare loan offers
When you’ve identified lenders that have good ratings and reviews, contact them to let them know what kind of loan you have that you want to refinance. Once you receive a refinancing offer you like, compare the new loan to your current loan. Make sure it will benefit you before you move forward.
4. Gather the documents you need to apply
You may need many of the same documents as you did when you applied for your original loan. These include your government-issued ID, proof of income, bank account information, as well as information about the original loan.
5. Apply for a refinance loan
Visit the lender in person or navigate to the lender’s website to fill out a refinance loan application. Review the application carefully, since any incorrect or missing information can mean delays in approving or funding your loan.
After submitting your refinance application, you should know within minutes if you’re approved.
What happens to my original loan?
Once you’re approved for a refinance loan, the lender may make it easy to pay off your existing loan with the new funds. For example, they may pay off the loan directly, which is typically the case if you apply with the same lender that issued your original loan. In some cases, the lender may transfer funds to your bank account so you can pay off the loan yourself.
After you confirm your old loan is closed, start making payments on your new loan.
Refinance your loan with Advance America today
If you’re eligible, Advance America makes it easy to refinance your existing Payday Loan or Installment Loan. Log in to your Advance America account to view your refinance eligibility and apply online.
Prefer to apply in person? Stop by your nearest Advance America store to discuss your options.
