When to Refinance a Personal Loan

Refinancing a personal loan can be a smart way to save money on interest, potentially lower your monthly payments, or help pay off debt faster. But timing, availability of refinancing offers and other factors can help you decide when to refinance a personal loan. Here’s how to know when it’s worth it—and when to hold off.

Can you refinance a personal loan?

Yes, in general, personal loans can be refinanced, but it depends on terms of the original loan with the lender. Some loans can be refinanced with the original lender or a third party lender, while some lenders do not offer refinancing or allow for refinancing in the loan terms. For example, certain eligible personal loans through Upgrade can be refinanced but that’s not the case with every loan provider or lender. 

What does it mean to refinance a personal loan?

Refinancing means taking out a new refinance loan to pay off the remaining balance on your existing loan. Ideally you would want to refinance when the refinance loan has better terms and a lower rate. Whether you’re looking for a lower rate, smaller monthly payments, or a faster payoff of your original loan, refinancing may give you a chance to reset your loan rate and terms to help better fit your financial goals.

When to Refinance a Personal Loan

1. You're looking to access more money and want just one monthly payment

Need another loan but want to avoid managing multiple monthly payments? By refinancing, you may be able to borrow an amount larger than your current loan balance and combine your existing loan with new funds into one new loan—with a single, simplified monthly payment. 

2. Interest rates have dropped

Refinancing could help you lock in a better deal if rates are lower now than when you got your loan. Even a small drop in interest or APR can lead to big savings on interest over time.

Example: If you took out a loan at 24% APR and now qualify for 14%, refinancing could cut the interest you pay significantly depending on your prior balance.

3. Your credit score has gone up

A better credit score may mean you qualify for better rates. If you’ve been making payments on time, lowered your credit utilization, or lengthened your credit history, your credit score may have improved which may qualify you for a lower interest rate on a loan.

Tip: A score over 670 is generally considered “good,” but crossing 720+ could unlock the most competitive loan offers. Learn how to get an excellent credit score.

4. You’re earning more

Got a raise or a new job? A higher income can improve your debt-to-income (DTI) ratio, making you more attractive to lenders. It can also improve your odds of qualifying for better loan rates and terms.

5. You want lower monthly payments

If your monthly budget’s tight, refinancing to a longer loan term can help reduce your monthly payment and free up your budget in the meantime. You might pay more in interest in the long run, but the breathing room now may be needed for other critical expenses.

What to know: Extending your term may mean lower payments but it could also mean more interest paid overall. 

6. You’re ready to pay off your loan faster

On the flip side, refinancing to a shorter term can help you get out of debt sooner—and may save you interest if there is no repayment penalty. Personal loans through Upgrade have no prepayment penalties, so you can pay off your loan early without getting charged a fee.1 If your finances have improved and you can handle higher monthly payments, this move could pay off.

When to Wait on Refinancing a Personal Loan

Refinancing doesn’t always make sense and it doesn’t work for everyone’s financial situation. Typically, you may want to skip refinancing if:

• Your credit score has dropped since you received your original loan
• Interest rates have gone up since you received your loan
• The fees of a refinanced loan outweigh the savings on interest
• You’re close to paying your original loan off

The Bottom Line

Generally speaking, the best time to refinance is when it helps you save money on interest, simplify payments, or help improve your current financial situation. Compare lenders, check your credit, and run the numbers so you can make a smart move that works for your goals. Upgrade makes it easy to refinance your personal loan with fixed rates, no prepayment fees, and affordable monthly payments.¹

¹Personal loans made through Upgrade feature Annual Percentage Rates (APRs) of 7.99%-35.99% and a 1.85%-9.99% origination fee, which is deducted from the loan proceeds. Lowest rates require Autopay and paying off a portion of existing debt directly. For certain discounts, collateral may be required. Repayment terms from 24 to 84 months. For example, if you receive a $10,000 unsecured loan with a 36-month term and a 17.59% APR (which includes a 13.94% yearly interest rate and a 5% one-time origination fee), you would receive $9,500 and would have a required monthly payment of $341.48. Over the life of the loan, your payments would total $12,293.46. The APR and other terms of your loan may vary and you may not be presented with multiple offers. If offered, your loan terms, including your rate, will depend on credit score, credit usage history, loan amount, and other factors. Late payments or other fees, as noted in your Borrower Agreement, may increase the cost of your fixed rate loan. Certain loan offers may not be available in all states.