Typically, personal loans tend to be more expensive than other types of loans. It thus makes sense for you to look around and try to find ways of refinancing them with loans that carry lower rates of interest as then you can end up saving a lot of money. Some steps that you need to follow to refinance your existing personal loan:
Improve Your Credit Score
Refinancing of personal loans is a good idea only when you are eligible to get a lower rate of interest from the new lenders. This is only possible if there has been a substantial improvement of your credit score. If you have been regular in making your monthly payments, it is quite likely that your credit score will have improved and has made you eligible for a better rate of interest.
You should get a report of your credit score and compare it with the score that you had when you had taken on the personal loan; if there is a significant improvement, it can give you added confidence to approach new lenders for refinancing.
Get Comparative Offers from Lenders
If you think you’ve achieved a credit score improvement that will make you eligible for a loans on better terms, you should communicate to your existing lender about your discomfort with the current rate. If the market conditions have changed, and you have been a good customer, your loan company may review your loan and give you a lower interest rate that can make the process of applying to other lenders unnecessary.
There are a number of online resources available that can display offers from a number of lenders simultaneously for you to compare and contrast. An online lender like can also give you very good rates. Before getting a new loan, always inform the new rate to your current lender to give them the opportunity of matching or bettering it.
Conduct a Thorough Review of the New Loan
Personal loan refinancing takes the same time and effort as applying for a new loan and is only worth it if you can achieve a significant saving. When you get different offers from new lenders do not focus only on the interest rate mentioned but instead find out the actual APR, which could be quite different.
Additionally, you need to establish if there are any application fees, hidden fees, penalties on repayment or limitations on the end-use of the money that can change the viability of the new loan. Be sure to verify that you are getting a repayment period of your choice. It is better that you get all these details and only do the paperwork after you have identified a suitable lender.[irp]
When you are considering loan refinancing, you should take care to examine not only the terms and conditions of the new lender but also see if there are any clauses in the contract of your existing personal loan that can make refinancing unworkable.
Going into the process with your eyes open can save you a lot of time and effort that may be otherwise unnecessarily wasted.