How to refinance a personal loan
Let’s take a step-by-step look at how to refinance a personal loan.
1. Check your loan amount
First, verify the exact amount you need to borrow on a new personal loan to pay off your original loans. Check the total loan amount due, as well as other important costs or fees you may incur to pay off your original loan and secure your new loan, such as: B. Processing fees you may have to pay with your new lender. Closing fees are fees charged by a lender for processing a new loan application.
2. Check your credit history and credit report
It’s important to understand your credit history before refinancing, as your credit history directly affects your interest rate. A credit score is a three-digit number that shows how well you handle debt. To get pre-approval for a loan, your lender can perform a soft request on your loan.
A hard request, on the other hand, occurs when you give someone permission to check your creditworthiness. If you have bad credit, before refinancing you should work to improve your credit score so you can get the best possible interest rate on your personal loan refinance.
You can access your credit report to check your credit history. This is a summary of how to handle credit and how to check for inaccuracies before applying for refinance. It’s a good idea to correct any mistakes before refinancing to get the best results.
You are entitled to a free credit report each year from each of the three major reporting companies – Equifax®, Experian™ and TransUnion®. Report any errors to any reporting entity before prequalifying for a new loan.
3. Pre-qualify for a new loan
After checking your credit reports for errors, you can prequalify for a new personal loan. This is considered a soft credit deduction that will not affect your credit score. You will need to provide some information, such as your name, address, income, social security number, and date of birth. After pre-approval, your lender will share interest rates, terms, and personal loan amounts with you.
4. Compare lenders and loan terms
Compare lenders and loan terms carefully. Banks and other lenders may offer different interest rates. Find out about various fees associated with refinancing (such as processing fees) and how you might pay them over the life of your loan.
Note that you may want to contact your current lender to renegotiate the terms of your original loan, especially if you were comfortable working with your current lender.
5. Apply for a new personal loan
Finally, you will need to apply for your new personal loan, which may require you to provide your lender with your bank account details, IDs, payslips, bank statements, and more. Your lender will also ask you for permission to do a hard credit request, which can do a little damage to your credit score. Your new lender then repays your old loans and you finally start paying off your new loan.