Taking a personal loan to consolidate your debts or paying higher fees can help you with your finances and free yourself from your debts. However, once you have received a personal loan and made the required payments on time, you can start thinking about refinancing the loan. Is it possible to refinance your personal loan to get a lower interest rate? And is it worth it?
Yes, refinancing a personal loan is not only possible, but it can also be a good idea. It makes sense that your creditworthiness improves to a level where you are offered a rate cut sufficient to offset the cost of borrowing.
When does it make sense to refinance a personal loan?
Your credit rating is better: One of the best ways to get a lower interest rate on your personal loan is to improve your credit rating. If your score has increased since your first loan application, this could be a good reason to refinance.
You want to change your rate type: a variable annual interest rate for a personal loan makes planning your monthly payments more difficult. Additionally, you may see an upward trend that will cost you more. Refinancing allows you to switch from a variable to a fixed interest rate in order to receive constant payments each month.
You want to avoid balloon payments: some personal loans may involve balloon payments, so you have to make a payment much higher than the normal monthly amount. You can refinance in advance to avoid this type of personal loan.
How to Refinance a Personal Loan
1. Calculate the amount you need.
What does refinancing a loan mean? In short, you always repay the existing loan with a new loan on different terms. Before buying offers, find out the exact amount to pay off your current loan. You can find this information by logging into your account or by calling your lender directly. Also, ask if there are prepayment penalties that could outweigh the benefits of refinancing.
2. Check your creditworthiness and indicate if your loan is sufficient for a low-interest rate.
Before you consider refinancing your loan, you need to know if you are entitled to an interest rate lower than the one currently paid. If the new interest rate is not significantly lower, it may not be worth refinancing. Also, check to see if lenders are flexible or difficult to quote an offer. Alternatively, you can check your own creditworthiness to find out if it has improved or not.
3. Buy prices and conditions from banks and lenders online.
Research is essential when you need to refinance personal loans. It is worth seeing what the different online banks and lenders like ExpressCash.com are offering and what their requirements are. A new loan with a lower interest rate is not necessarily better if you pay it off longer.
One problem with refinancing is the temptation to extend the term of the new loan beyond the term of the current loan. Even if you get a lower interest rate, you can pay more in total interest charges. Take out a calculator and calculate the prices offered. What is your total payment at the end of the loan?
4. Ask the lender if the question of the interest rate on the loan affects your creditworthiness.
With peer-to-peer lenders, you can research loan interest without compromising your creditworthiness until the closing of the new loan. However, once you close a new loan, it can affect your credit rating. It is usually five to ten points. The drop in your credit score is temporary, it only takes a year. The request itself will appear in your credit report for two years, but will not affect your score all the time.
5. Compare the refinancing rates
Finally, compare the refinancing rates and take notes on each rate shown. Create a quick chart to compare key features and interest rates. Then use your chart, your research, and your conversations with the lender to decide what works best for you.