1. Determine how much money you require.
When you refinance a loan, you are effectively replacing an existing loan with a new one with modified terms. So, before you start shopping for quotations, figure out how much money you’ll need to pay off your present loan. Check to discover if your original lender imposes prepayment penalties, which may negate the benefits of refinancing.
Knowing your exact loan payoff amount is necessary since you will need to know the loan refinancing amount required to be free and clear of your initial loan.
2. Examine your credit score and report
Before you contemplate refinancing your loan, you should review your credit score and report. This is an essential step in determining whether you are eligible for a cheaper rate than what you are presently paying. If the new interest rate is not much lower, refinancing may not be worth it.
Before searching for a new loan, find out whether lenders use a soft or hard draw on your credit score when providing you with a quote. A hard credit score will lower your score, at least temporarily, so acquire estimates from lenders who show you your rates using only a soft draw. This is referred to as prequalification.
Take the following steps: You can get a free credit report from Equifax, Experian, or TransUnion.
3. Shop around for the best rates and conditions at banks and internet lenders.
Research is essential when refinancing personal loans; research rates and terms from different lenders before renewing. It’s crucial to shop around because the interest rate and terms you’re offered can vary between lenders. Also, a new loan with a lower interest rate isn’t necessarily better if you’re paying more in fees or prolonging it unnecessarily.
“Refinancing a loan may result in additional fees and changes to the loan terms,” explains Jeff Wood, CPA and partner at Lift Financial. “In order to replace your present loan, you may have to pay a prepayment penalty.” All of these variables must be examined in order to evaluate whether a refinance makes sense for you, both personally and financially.”
If you aren’t seeking for reduced monthly payments, it might be a bad idea to prolong the maturity of your new loan past the maturity of your present loan. Even if you have a cheaper interest rate, you may wind up paying more in interest over time.
Take the following steps: Examine the benefits of at least three personal loan refinance options. Use a personal loan calculator to see the total cost of each loan.