Yes, you can refinance a personal loan by rolling the balance over into a new loan. With refinancing, you take out a new loan to pay off your existing personal loan or other debt, ideally with lower interest rates or a shorter loan term, helping you save money.
People usually refinance a loan to:
- Pay of high interest debt with a lower interest rate
- Repay debt faster with a shorter loan term
- Get a more affordable monthly payment
- Switch lenders and take advantage of offered perks or benefits
While all lenders are different, some basic qualification requirements for refinancing a personal loan include:
- Strong Payment History (most important) — You must have a history of making your due payments on time, this includes payments of bills, existing loans (like bad credit loans), and other personal debts.
- Verifiable Income — You must show proof of income, usually through a pay stub, bank statement, or tax documents.
- Good Loan Standing — You must be up-to-date on your current loan, not in a delinquent state.
Tips for Success When Refinancing
Refinancing isn’t always the answer. Unless your credit has improved and you can qualify for lower rates or better loan terms, a refinance may not be the most beneficial option. Below are some tips to help you decide if refinancing your personal loan is the right choice for you.
- Use the 2% Rule — If the interest rate on your new loan isn’t at least two percentage points lower than your current rate, the loan may end up saving you money.
- Be Mindful of Fees — Most loans come with origination fees, and others may have prepayment penalties or other additional costs. Make sure the fees that come with your loan don’t outweigh your savings.
- Watch Your Loan Term — Longer terms often mean lower payments, which may seem convenient. But if your loan terms are too long, then you’ll end up paying more in interest for your overall loan.
- Consider a Co-Signer — A co-signer with good credit may help you qualify for lower rates or more advantageous loan terms.
The goal of a personal loan refinance is usually to get lower interest rates or lower monthly payments on your current loan, by replacing it with a new one. Refinancing can help you save money and pay off debt faster, but only if the new loan offers clearly better terms after considering fees, and other requirements like good payment history and stable income.
