Refinancing Personal Loans

Consumers should look to refinance personal loans when the savings on their current interest rate currently outweighs the cost of refinancing the loan and going through all the hassle of applying. If refinancing will help increase your cash flow and you are getting a better APR, it is definitely something worth considering. Consumers may also want to refinance their person loans if they are looking to consolidate their loans into one and simplify their finances.

Is Refinancing a Personal Loan Possible?

Yes, it is definitely possible to refinance a personal loan. You can literally refinance anything and there will usually be a lender willing to help you do so, so long as your credit meets their parameters/requirements. Moreover, consumers may want to refinance their personal loans if they are looking to consolidate their debt into one or simplify their finances in general.

When Should You Refinance?

A consumer should refinance a personal loan when the savings on interest outweighs the cost of origination and any other associated refinancing fees. If refinancing will help increase cash flow and help you acquire a better APR, it is definitely something worth considering.

What to Keep in Mind

You will have to pay for origination fees and any other associated refinance costs. These associated costs and fees will go against any potential interest rates savings you might see and will counteract that savings. Due to this you should like any of these fees as upfront interest payments when comparing a potential new refinanced loan vs. an older loan, in order to help you in your decision-making process. Your new repayment plan may have a higher monthly obligation than your previous loan. If you can’t meet you monthly liability on the loan it could be catastrophic for you credit, etc.

The best way to gauge whether this is the right move for you: Use the framework/benchmark of refinancing a home mortgage. Although origination fees and other refinance costs will not be nearly as high as closing costs, etc., this is a great benchmark to use on determining whether this is the right move for you. If your interest savings on the new refinanced personal loan does not outweigh the cost of origination, finance fees, etc., it is not worth doing a refinance on a personal loan.

Advantages

You could very well save a good chunk on interest payments, acquire more funding if required and consolidate other debts to simplify for your finances.

Disadvantages

As stated above, a refinance is essentially considered a new line of credit and new lending product. Because of this you will typically have to pay all the associated fees with getting a new loan altogether.

Now is technically not the best time to try and refinance a personal loan – however given the current economic uncertainty now will likely be better than later. Although, the LIBOR and Feds Funds Rate have recently been on the decline, personal loan rates are still historically quite high. Borrowing is not particularly a good idea during times of extended economic uncertainty, especially in the case of consolidating debt with a personal loan (you are essentially robbing Peter to pay Paul). However, if it’s an absolute necessity and something that will bridge any financial gaps in the short term, it is definitely something you should look into.