Lower interest rate
If your credit has improved or if interest rates have decreased since you took out your loan, you may qualify for a lower rate. This could reduce the total interest you pay over time.
Reduced monthly payment
Extending your loan term may lower your monthly payment, which can free up cash for other financial priorities.
Shorter repayment timeline
Refinancing into a shorter term may help you pay off debt and interest costs, through your total repayment sooner.
Simplified finances
Moving to a new lender may provide a clearer repayment structure, improved servicing experience, or features that better support your needs. In some cases, refinancing may also allow you to add or consolidate multiple debts with one single loan payment.
Changed financial circumstances
Life changes, such as a new job, relocation, or unexpected expenses, can impact your budget. Refinancing may help align your loan terms with your current reality.
Review your current loan
Start by understanding your existing interest rate, remaining balance, monthly payment, and any prepayment penalties that might apply.
Check your credit
The terms you receive heavily depend on your credit history. Knowing where you stand will help you create realistic expectations.
Shop for new loan offers
Always compare terms and rates from multiple lenders. This will help you find the best possible option for your loan needs. Most of these companies will allow you to check your rate with a soft credit pull, which does not impact your score.
Apply for the new loan
Once you're satisfied with a good loan option, submit your application. The lender will then review your financial details. If approved, they will finalize the loan terms.
Pay off your existing loan
Once your loan is funded, use the proceeds to pay off your existing loan in full. From then on, you'll only make payments on the new loan. Most lenders will pay off the old loan on your behalf.
Begin your new repayment plan
You will now follow a new repayment schedule, one that better fits your financial goals.
Total cost of the new loan
Look beyond the monthly payment. Calculate the total amount you'll pay over the lifetime of the loan and make sure to include fees. Remember, a lower monthly payment doesn't always mean lower long-term savings.
Origination fees
Some lenders charge an upfront fee when issuing a new loan. This is called an origination fee, and it typically comes out of the loan proceeds. Be sure to factor this into your comparison to ensure refinancing truly benefits you.
Prepayment penalties
Check whether your current loan charges a fee for paying it off early. Some lenders may charge prepayment penalties, so schedule your review before finalizing additional funding.
Impact on credit
A full application requires a hard credit inquiry, which may cause a temporary dip in your credit. But you can rebuild your score over time by responsibly managing new payments.
Your financial goals
Factor in your financial goals as you decide if paying less each month, getting out of debt faster, having more cash flow, or simply finding a lender that fees is the better fit.