People need personal loans for all sorts of different reasons, from home improvement projects to equipment finance and financing a jet ski.
A simple solution is personal loan refinancing. Loan refinancing is a great way to turn your existing loans into one consolidated loan. However, before considering refinancing, it’s essential to know what it means and how it works.
Let’s get to the following commonly asked questions.
Unlike business loans and other loans secured against an asset, you can use a personal loan for whatever you want. Also known as unsecured loans, there are different types that you need to know.
These include loans with fixed rates. Or, you can get a more flexible loan with a variable rate. And, you may get the option to pay weekly, fortnightly or monthly, although monthly is most common.
Many personal loans charge an upfront fee, fees for extra repayments, and other ongoing fees. So, if you’re sitting on more than one, you might be overpaying. Thankfully there are ways of saving money on your loans. More on this shortly.
At the same time, you’ll likely have to manage other outgoings, including car insurance and your credit card balance. So, before taking out a new loan for home renovations or something similar, consider consolidating your existing repayments.
You can, in theory, apply for as many personal loans as you like. But, it’s up to the loan provider to approve you. Most will be less likely to do so if you have a current loan on the go.
Keep in mind that the act of applying for a personal loan can impact your credit score.
Note: If your existing loans cost you too much money, you could take out a loan to consolidate existing debt. Use a loan comparison tool to find the right option for you.
Yes, you can refinance a personal loan. You may choose to do so to get lower rates, fewer monthly fees, and a more manageable monthly repayment. Compare personal loans to find the best options.
Bear in mind that you may have to pay an exit fee to leave any current loans. Plus, be aware of the origination fee or establishment fee for your new loan. But, if the comparison rates are significantly better, it might be worth the one-off expense.
Note: Personal loan refinancing works a lot like mortgage refinance. Here, too, you can find better mortgage rates from different mortgage lenders. In either case, refinancing can save you money.
Having too many loans on the go could be affecting your credit score. With so many monthly payments for multiple debts regularly leaving your bank account, it’s more likely you’ll miss one.
It would help if you also recognised that any loan you take adds to your expenses, including home insurance, travel insurance, life insurance, and income protection. Check your online banking for a clearer idea of your current outgoings.
In addition, your current loans might not offer the best deals. They may not allow you to make extra repayments to reduce your loan term. Or, they might charge an annual fee that hikes up your total repayment. Plus, there might be a loan out there with a lower interest rate.
So, it makes sense to find a single loan that offers you more than your original loan. Especially if you have excellent credit, you’re likely to find more attractive deals.
Q4: How often can you refinance a personal loan?
You can refinance existing loans whenever you like because you use the money from your new loan to pay off any existing debt. However, loan applications can lower your credit score. So, the fewer you make, the better your credit history will be.
Refinancing is usually worth it if you have one or more high rate loans on the go. Or if you currently pay high repayment fees. Just try not to do it too often; otherwise, you might jeopardise your creditworthiness.
Q5: Can you refinance a personal loan with bad credit?
Just as it’s harder to take out a personal loan with bad credit, it is also harder to refinance loans. However, loans for bad credit do exist, and these bad credit loans are ideal for those who have previously struggled with their financial situation.
The loan rates will be worse for you than for people with good credit, and this means you’ll have to pay more interest, and your loan repayments will be higher as a result. So, it’s crucial to balance the pros of a high rate personal loan with the cons of more debt.
Important: If you’re unsure whether to refinance a personal loan with bad credit, use a refinance calculator to see what’s out there and seek financial advice.
Q7: How do I refinance a personal loan?
Refinancing your loan is easy. First, check your credit score, and this will give you a clear insight into the sorts of deals you can expect to get. The higher your score, the better the loan options.
Then, start shopping around for the best personal loan rates. You can do this using a personal loan calculator. Enter details including preferred loan amounts and loan terms to see what refinance options are available.
Once you’ve found a suitable loan option using loan calculators, put in a loan application. Remember that you may have to pay an application fee to refinance the loan.
Then, wait for the approval. As soon as it arrives and you receive your money, you can use it to pay off your current debts, and your subsequent repayments will go towards paying off your one new loan.
Q8: How else can you pay off your personal loan?
Refinancing is an excellent option for many people, but debt consolidation loans don’t suit all consumers. So, you might want to consider other repayment options.
For starters, you could consider sticking to your original personal loan repayment schedule. Of course, this might leave you covering regular payments inflated by fees or exorbitant interest rates. Use a repayment calculator to find out whether you could save.
If you find you aren’t eligible for a new loan or you’d prefer not to apply for another, consider an informal debt agreement. With a debt agreement, your loan lender might allow you to rearrange the terms of your loan. So, you’ll pay what you can afford rather than what you owe.
Or, you could take out a short term loan to cover a month’s worth of repayments. But, while that might sound attractive, this financial product carries higher interest rates and more frequent repayments.
Note: On balance, it is generally more prudent to refinance a personal loan if you can. The other options are a last resort, concise term loans, and they are likely to cost you more money in the long term.
Loan refinancing brings with it plenty of benefits. For one thing, it’s easy to find a new low rate personal loan with the help of loans comparison sites or a loan repayments calculator. So, personal loan refinancing could save you money.
For another, you can consolidate multiple existing debts into one. So, you’ll only have to manage one loan through one online lender, which makes managing your finances much more manageable.
Look to the WeMoney website to refinance your loan. Our extensive lending panel consists of the country’s most reputable loan providers. So, if there’s a better deal out there for you, our comparison tool is sure to find it.
Whether you’re looking for a no-fee unsecured personal loan or a loan with a lower interest rate, WeMoney can help.
If you enjoy using our app, please take a moment to rate it in the App Store. Your feedback in the past has tremendously helped us at WeMoney to improve the app to help it be the best that it can be. A massive thanks to each one of you for making that happen!
Disclaimer: The author is not a financial advisor and the information provided is general in nature and was prepared for information purposes only. This article should not be considered to constitute financial advice. Accordingly, reliance should not be placed on this article as the basis for making an investment, financial or other decision. This information does not take into account your investment objectives, particular needs, or financial situation.