You can refinance a personal loan, whether it be student loans, an auto loan, or debt that you’ve consolidated. It means applying for a new loan to replace the existing one and using the new funds to pay off the balance due. That doesn’t mean that an approval is always a given. There are cases where you søke om å refinansiere (translation: apply to refinance) but are denied the personal loan refinancing even when pre-qualified and up to the last moment.
It can be numerous things from creditworthiness to income. As a rule, most people receive approval and are given a better interest rate allowing them to save considerable money in the long run despite the fact they carry the same amount of debt.
Some people choose to extend their term, in addition to helping lower their monthly payments. It will increase the life of the loan’s cost since there will be more interest to pay, but it can help with affordability on repayment each month if there’s a struggle to do that.
Other people shorten the term to pay off faster, making the life of the loan much less expensive with less interest paid overall but more costs paid each month. If you can afford the repayments, it makes sense to try to do that.
Refinancing A Personal Loan
You can apply to refinance your loan for many reasons, whether you need to redo your student loans or rework an auto loan, or perhaps another purpose like redoing your consolidation loan. If you are an entrepreneur, you may want to help finance your startup. The process of applying for a personal loan refinancing is comparable to how you got the existing one, but you need to pay attention to the varied stages. Go here for guidance when loans are denied.
● Pay attention to your credit
When applying for any loan, the first step is to understand your credit score thoroughly. When refinancing, it should be better than it was with the existing loan. If not, you could face challenges finding a lender willing to give a lower rate.
● Lenders
It’s wise to take the time to browse the gamut of personal lender options in order to find those that offer the best rates and terms for refinancing. Filter out the ones that you won’t qualify with using your credit, those that won’t provide the possibility of lower interest rates compared to your current rate, and look for those that don’t charge fees for applying for the personal loan refinancing.
● Apply for the refinanced loan
Whether you apply online with the provider or do so over the phone or in person, it’s essential to ensure the application is filled in thoroughly to prevent any delays in your application’s evaluation. Just because the process is fast and easy doesn’t mean you shouldn’t take your time.
● Wait for approval
The suggestion is the approval process takes roughly a few business days. If approved, most people will see their funds as soon as seven days, perhaps sooner, maybe more, but it depends on the lender.
● Payoff
Some lenders will take the opportunity to pay off the old loan if you give them the account information. Otherwise, you’ll get a lump amount to handle the payment yourself, which you’ll need to do relatively quickly. You don’t want to have two open balances. There’s generally not a prepayment penalty with these types of loans.
● Make monthly repayments on time
As you did with the old loan, you’ll be responsible for monthly repayments, but you can pay more each month without penalties. It actually saves you money and interest over time. Learn to make auto refinance payments on time or why your application for refinancing might be denied at https://www.rategenius.com/not-approved-car-loan-refinance/.
Should You Consider Refinancing Your Personal Loan
The suggestion when wondering if you should refinance a personal loan is if it will save you money. There’s generally no point in going through the fuss and aggravation of applying for a new loan if you’re not going to receive better terms than you currently have. If there are no savings, you’re trading one loan for another precisely like it. It might even cost you more.
● When to refinance a personal loan
1. When it saves you money
You should always review the costs of a new loan to ensure there is a lower APR than the current loan before you accept the terms of a personal loan refinancing. Look at the term compared to yours. If there’s a longer life with not a lot less interest, you might pay more even if the repayment each month is less. The other option is to shorten the term and pay a higher monthly expense which would give you less on the overall life of the loan and pay it off earlier.
2. When your credit is improved
If your credit score hasn’t increased at all or perhaps become worse, the likelihood of getting a better interest rate is unlikely. When the score significantly improves, you have a better chance of getting a better interest rate. Also helpful is additional income and lower debt than previously.
3. When you’re not making a significant financial decision
You’ll have a hard pull of your credit when you apply for a new loan to refinance your existing one meaning your score will drop a few points but only temporarily. The problem is if you have plans to do something significant like buying a new car or taking out a house lease, you want your credit score as high as possible.
4. When other options aren’t the answer
The primary alternative to refinancing a personal loan is a simple balance transfer to a credit card. Depending on the card and your score, it could offer you a better deal, but these give you shorter payoff times since their introductory APRs expire after mere months, then being replaced by standard high APRs.
Alternative To Personal Loan Refinance: Balance Transfer Cards
A standard tool for personal loan refinancing of smaller amounts is a balance transfer card. The card issuer pays off the initial debt but adds that balance to the card for you to pay off in the introductory time frame to avoid accrual of the high APR charges.
Many of the cards offer a 0% APR on introductory balance transfers, with the average term being roughly 12 months for payoff. That’s why a small balance is suggested for this alternative.
Depending on your debt level, you might face challenges finding a balance transfer with a high enough limit to transfer the whole amount. It could be damaging to your credit score.
Even if you do find one allowing several thousand dollars and with a term as long as perhaps 20 months with a 0% APR, that’s still a lot of pressure to try to meet that goal.
It seems if you already have a personal loan and want to redo the process, you wouldn’t try something riskier, or that carries the possibility of damaging your credit.
Transferring other high-interest credit cards to a balance transfer makes sense to get rid of credit card debt, but it doesn’t make sense as a refinance option for a personal loan necessarily. Applying for a new loan to replace the current one gives you a better opportunity for lower rates with better terms than you’ll see with the balance transfer after the term is up, and the rate goes as high as 20%.
Final Thought
Applying for personal loan refinancing is something that takes careful consideration and forethought. One of the primary considerations is ensuring that you have an improved credit score, increased from when you applied the first time. Also, improvements in income and debts will help get you the best interest rates and better conditions.
With the right conditions, it’s essential to research lenders and the terms and conditions they offer. The ultimate goal is to ensure that you save money, whether on monthly repayment or the overall life of the loan. Shortening the term and paying more each month is the best way to keep the most interest and pay it off the fastest.
You can choose balance transfers as an alternative to loan refinancing. It doesn’t seem appropriate when refinancing a personal loan, more for transferring high-interest credit cards to pay them off. Still, it’s a suggestion. You will need to have a small balance to pay back in a short period before the hefty APRs set in
In any case, it’s essential to apply with a thorough personal loan refinancing application, so there are no delays in the evaluation and approval of the funds. Plus, make sure to pay your current loan off immediately to avoid having two open accounts. No one wants that.
