How to Refinance a Personal Loan

Refinancing a personal loan means replacing your current loan with a new one. Lower interest rates, better terms, and lower monthly payments are just a few reasons you might decide to refinance a personal loan. The process not only saves you money but also adjusts your repayment schedule.  

Read on; you’ll find out how to refinance a personal loan, its benefits and drawbacks, and when it might make sense. This step-by-step guide to refinancing will highlight the best lenders to consider before deciding. 

Table of Contents

1. Can you refinance a personal loan?
2. Pros and cons
3. 6 steps to refinance a personal loan
4. Best lenders for personal loan refinancing
5. When to consider refinancing
6. Alternatives

Can you refinance a personal loan?

Yes, you can refinance a personal loan. Refinancing replaces your current loan with a new one. The process lets you acquire lower interest rates and an adjusted repayment period that could reduce your monthly payments. 

Refinancing a personal loan is a common practice for borrowers who want to take advantage of improved credit scores and lower interest rates. It is also used to consolidate multiple loans and extend repayment terms by several months to reduce the required monthly payments. 

It’s important to note that refinancing doesn’t eliminate debt. It restructures it by using a new loan to repay the old one. 

Pros and cons of personal loan refinance 

Before you decide whether refinancing is right for you, consider the benefits and drawbacks.

Pros

• Lower interest rates

  If your credit score has improved since you took out the original loan, you might qualify for a lower interest rate, reducing the overall cost of the loan.

• Reduced monthly payments

  Extending the loan term can lower your monthly payments, easing your financial burden.

• Simplified finances

  Consolidating multiple debts into a single loan can simplify your financial management.

Cons

• Extended repayment period

  Lower monthly payments are appealing, but extending the loan term may result in paying more interest over time.

• Origination fees

  Some lenders charge fees for processing the new loan, which can offset the savings from a lower interest rate.

• Impact on credit score

  Applying for a new loan involves a hard credit inquiry, which can lower your credit score by a few points.

Typically, refinancing a personal loan is best used when you have other high-interest-rate loans that you now have an opportunity to consolidate to a lower-rate personal loan, thus reducing the total monthly expense and interest being paid.

At times, it may be necessary to do this to reduce monthly expenses due to cash flow concerns. This likely will lead to a negative of additional interest paid, but may be necessary to prevent other potential loan needs or negative credit impacts due to not paying certain bills.

Rand Millwood, CFP®

6 steps to refinance a personal loan

The process of refinancing a personal is straightforward. Here’s how you can go about it, step by step:

1. Review your finances

Start by taking a close look at where you stand financially. Check your credit score—it’s a crucial factor in refinancing. Most lenders look for a FICO score of at least 600, but a score of 700 or higher will give you access to the best rates. 

Assess your debt-to-income ratio (DTI) too. Refinancing could be challenging if your DTI is above 40%, though some lenders have more flexible criteria. This is also the time to consider your goals. Are you looking to lower your monthly payments, reduce your interest rate, or adjust your loan term?

2. Research lenders

Once you’ve confirmed that refinancing is right for you, it’s time to shop around. Many lenders offer a prequalification option, which lets you see potential rates with just a soft credit check—so no harm to your score! 

Compare offers based on interest rates, loan terms, and fees. Some lenders also offer benefits, such as discounts for setting up autopay or benefits for current customers. Take your time to find a lender that meets your needs.

3. Submit a loan application

When you’ve chosen a lender, it’s time to apply. You’ll typically need to provide proof of income, such as recent pay stubs or tax returns, as well as your bank statements and identification. 

Be prepared for a hard credit check at this stage, which may lower your credit score by a few points. To minimize the impact, try to submit all applications within a 14-day window—credit scoring models often treat these as a single inquiry.

4. Review the loan offer

Once you receive an offer, take a careful look at the details. Does the loan amount cover your current balance? Are the repayment terms reasonable? 

And don’t forget about fees—origination fees or prepayment penalties can quickly eat into your savings. If everything looks good, accept the offer and move on to the next step.

5. Pay off your current loan

With your new loan approved, it’s time to close out the old one. Some lenders handle this directly by paying off your balance, while others will deposit the funds into your account so you can take care of it. 

Either way, confirm that your previous loan is paid off in full and that the account is officially closed. This avoids any surprises down the road, such as unexpected fees or lingering balances.

6. Begin repaying the new loan

Your new loan comes with new responsibilities, so be sure to stay on top of your payments. Setting up autopay can help you avoid missed payments—and some lenders even offer interest rate discounts for doing so. 

Check your credit report to confirm that your old loan is marked as “paid in full” and that your new loan is reported accurately. From there, stick to your budget and enjoy the benefits of your refinanced loan.

Best lenders that allow personal loan refinancing

The best lenders for personal loan refinancing offer competitive rates, flexible terms, and features tailored to your goals. For example, if you’re refinancing to lower your monthly payment, you might look for a lender with extended repayment terms. 

If your focus is on paying off debt faster, you’d want a lender offering low rates for shorter terms. Other considerations could include no prepayment penalties, the ability to consolidate multiple loans, or lenders that cater to borrowers with improving credit scores.

Below is a comparison table of our top recommendations for lenders offering personal loan refinancing. We’ve categorized these options based on credit ranges:

• Excellent credit (740 and above): Typically qualifies for the lowest rates and most favorable terms.
• Good credit (670 – 739): Often eligible for competitive rates but may pay higher rates.
• Fair credit (580 – 669): May qualify for refinancing but with higher rates and potentially more limited term options.
• No credit history: Options for those without a credit score, often requiring alternative data, such as income or employment history to qualify.

Here’s a closer look at our choices:

Credible

Best Marketplace

5.0 _/5

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Why it’s one of the best

Credible is ideal for refinancing a personal loan if you want a marketplace that lets you compare multiple offers quickly. With Credible, you can see rates from multiple lenders without affecting your credit score, making it easy to find a new loan with better terms. 

Credible’s wide lender network offers flexibility for those seeking lower rates, shorter terms, or other specific refinancing needs. Credible’s streamlined application process can help expedite your loan comparison, saving time and effort.

Rates (APR)	6.94% – 35.99%
Refinance amounts	$1,000 – $200,000
Repayment terms	12 – 120 months

SoFi

Best for Good Credit

5.0 _/5

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Why it’s one of the best

SoFi is an excellent choice for refinancing if you have good credit and want to secure a lower interest rate or improve loan terms. Known for its competitive rates and member benefits, SoFi offers refinancing for personal loans with no origination fees, which can save on upfront costs. 

SoFi’s online process and customer support make refinancing smooth, especially if you have strong credit and want favorable terms to help pay off your loan faster or reduce monthly payments.

Rates (APR)	8.99% – 29.99% fixed
Refinance amounts	$5,000 – $100,000
Repayment terms	24 – 84 months
Min. credit score	660

Upgrade

Best for Fair Credit

4.9 _/5

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Why it’s one of the best

Upgrade is an excellent option if you have fair credit and want to refinance a personal loan to reduce your monthly payments. Upgrade offers accessible options and flexible terms, making it easier for borrowers with mid-range credit scores to qualify for refinancing. 

Upgrade offers credit monitoring and financial education to help borrowers improve their credit over time, making it a practical choice if you’re working to strengthen your credit score.

Rates (APR)	9.99% – 35.99%
Refinance amounts	$1,000 – $50,000
Repayment terms	24 – 84 months
Min. credit score	580

Upstart

Best for Little to No Credit

4.8 _/5

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Why it’s one of the best

Upstart specializes in helping borrowers with limited or no credit history refinance their personal loans. By considering education and employment, Upstart’s model is friendly to individuals who may not qualify through traditional underwriting. 

If you’re looking to refinance without an established credit history, Upstart could offer more favorable terms than your original loan, making it easier to manage payments as you build credit.

Rates (APR)	7.80% – 35.99%
Refinance amounts	$1,000 – $50,000
Repayment terms	36 or 60 months
Min. credit score	300

LightStream

Best for Excellent Credit

4.8 _/5

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Why it’s one of the best

LightStream is ideal for those with excellent credit who want the best refinancing terms available. LightStream offers low rates and a simple application process with no fees, making it one of the most affordable options for qualified borrowers. 

With its Rate Beat Program, LightStream will match lower rates from competitors, so it’s beneficial if you’re shopping around to ensure the lowest rate. If you’re a borrower with excellent credit, LightStream’s flexible terms and competitive rates make it a top choice for refinancing.

Rates (APR)	6.94% – 25.29%
Refinance amounts	$5,000 – $100,000
Repayment terms	24 – 144 months
Min. credit score	660

When to consider refinancing

Refinancing a personal loan is a smart decision in certain situations. Here are scenarios where it might make sense. 

Improved credit score

If your credit score has improved since you took out your first loan, you may qualify for lower interest rates. A lower interest rate will reduce the overall cost of your loan over time and help you save money. 

Refinancing a personal loan with an improved credit score benefits you if you initially qualified at a higher interest rate. 

Lower interest rates available

Market conditions change over time, and interest rates may drop. If today’s rate is lower than what you pay on your current loan, it might be time to refinance. This reduces the total cost of your loan and makes your debt more manageable. 

High monthly payments

If you’re struggling to make your monthly payments, refinancing can reduce those payments by extending the loan term. However, extending the terms of your loan can also increase the interest paid over the life of the loan.

This option is best for borrowers needing immediate relief from high monthly payments to pocket more cash. 

Debt consolidation  

You can use refinancing to combine multiple loans into one. This is useful if you juggle multiple loans with different payment schedules or interest rates. Refinancing makes it simple with a single monthly payment. Learn more about this in our guide to how debt consolidation works. 

Change in terms 

Refinancing a personal loan is a solid option if you want to modify your original loan terms. For example, switching from a variable-rate loan to a fixed-rate loan gives you a more predictable payment schedule and reduces your uncertainty. 

Alternatives to refinancing a personal loan

Refinancing a personal loan is just one way to manage your debt, but it’s not your only option. Before committing to refinancing, consider exploring other strategies that suit your financial situation better. Start by checking with your lender to see what solutions it offers, and then explore these alternatives:

Negotiate with your lender

Contact your lender and discuss options to modify your loan terms. Many lenders are willing to lower your interest rates, extend your payment terms, or waive fees if you are experiencing financial hardship. Debt settlement could help you avoid taking out a new loan. 

Credit counseling 

Credit counseling services help you develop a plan to manage your debt. These credit professionals guide you on budgeting, reducing your expenses, and negotiating with creditors. With freed-up cash flow, you could find your monthly payments much easier to manage than taking out a new loan.  

Balance transfers

Transferring your loan balance to a new credit card is a viable option if you qualify for a credit card with 0% introductory rate. This will reduce your monthly payments and give you a window of opportunity to make significant contributions to the repayment of the balance. However, once the promo period ends, you’ll need a plan to avoid the higher interest rates.