When you refinance a personal loan from the same lender may seem like a good idea. However, you should consider some things before deciding to refinance. You should understand how and if you qualify. You should also make sure you understand the refinancing process. Then you could ask yourself the question rather or not you can refinance a personal loan from the same lender.
Refinancing Your Loan From the Same Lender
Refinancing your current loan makes sense when it saves you money. When refinance a personal loan from the same lender, you may get a lower interest rate. You can shorten the amount of time you have to pay back the loan. If interest rates have gone down since you first got the loan, you could get a better rate now. Decreasing the length of time you pay back the loan may also decrease how much you pay in interest.
If you have a variable rate loan, you could switch to a fixed rate loan. This stops your monthly amount from changing, or increasing, every month. The lender may charge you fees or penalties to refinance. Factor that into the decision when determining if you are saving money. Make sure you look at the bottom line. Determine how much money you pay when the loan is paid off. You may end up paying back the loan for a shorter period of time and still pay more money in the end. You should do personal loan shopping to make sure you are getting the best deal.
Should You Refinance a Loan to Payoff the Same Lender?
When you refinance a loan from the same lender it will make sense in certain instances. Often times, you aren’t able to refinance a personal loan from the same lender. If you are, be sure to look at the fees and costs associated with a refinance, even if you choose to go with the same lender. You should be aware of fees such as an application fee, an origination fee, early repayment fees, and loan insurance.
Some lenders are willing to negotiate some of these fees. Be sure to ask. In some cases, lenders take the fees directly from your loan which means less money in your pocket. Be sure to read all the fine print. When the fees add up to be too much, it can negate any savings you might get from refinancing. You want to compare and shop personal loans to make sure your current lender offers you the best refinance options.
What Does Refinancing a Personal Loan Mean?
When you refinance a personal loan from the same lender, you are taking out a new loan so that you can pay off an existing loan. Typically, the purpose when you refinance a personal loan with the same lender is to get a lower rate of interest or to decrease the monthly payment amount. You may be able to get lower monthly payments by agreeing to a longer repayment schedule.
Keep in mind, this increases the total amount you pay back. Your original loan may not have been ideal, but it was the best you could get at the time. A finance may allow you to get a more reasonable loan agreement.
Basically, you are taking out a new loan to pay off the old loan. Sometimes this gives you some extra cash, but not always. This happens often with mortgages. You may have gotten your mortgage 12 years ago with an interest rate of 8%. The rates may have come down to 5% and refinancing could save you hundreds of dollars.
6 Steps to Refinance a Personal Loan From the Same Lender
When considering if you want to refinance a personal loan from the same lender, there are some steps you should take to make that decision. Refinancing may not be the right move for you at this moment. Taking these steps into consideration may help you determine if it is.
1. Make Sure Your in Good Financial Shape
You should check your credit first before doing anything else to make sure your refinance for a personal loan won’t be rejected. You may have an error on your credit report. While this is usually an easy fix, you don’t want to have errors on your credit. These can prevent you from getting loans, or other types of credit. You want to make sure that you aren’t carrying too much debt.
Be sure that your debt to income ratio is in a good place. If your employment isn’t stable, that could impact your ability to get a loan. If you hop from job to job, this can impact your loan worthiness. If you have too many different loans currently, most lenders won’t approve you for another. It appears to the lender that your income is coming from loans and not your income.
2. Compare Personal Loan Options With Your Lender and Others
Your current lender may not offer you the best refinance deal. When you refinance your personal loan from the same lender, you want to decrease your monthly payment, or the overall total amount you pay back. You may also want to decrease the length of time it takes you to pay back the loan. You should compare your current loan other options from the same lender. You should also compare what other lenders can offer. A different lender may give you a better offer.
3. Calculate Refinancing Cost (Beware of Fees other Fine Print)
When you refinance a personal loan from the same lender it comes with fees. You should be aware of the fees before you decide to refinance a personal loan with the same lender. Do not ignore the fine print. Read everything and make sure you understand what you are paying. Fees can add up to as much as 8% of the value of the loan. Some personal loan fees that you should look for are a one time application fee simply to fill out the application.
There are origination fees from some lenders. Make sure there is no early repayment fee. Some lenders charge you for paying the loan off early. Check to see if the lenders charges any other fees that may crop up unexpectedly, like a late payment fee. A lender may require loan insurance. Walk away from this lender. A personal loan is unsecured and does not require any type of insurance.
4. Pre-Qualify and Apply
Pre-qualifing for a loan gives you a clear picture of your options and helps you decide in which direction to go. Pre-qualification does not impact your credit. You should be aware that the numbers a lender gives you when pre-qualifying may change when you apply. During pre-qualification, the lender does a soft hit on your credit. This gives the lender a small amount of information.
When you apply for the loan, they do a hard hit on your credit and pull your entire credit history. Some lenders use the term pre-qualified while others use pre-approved. It’s important that you understand if the lender is making a hard or soft inquiry to your credit. Be sure to read all the documents and understand the fine print.
5. Secure New Funding
Once you decide which lender is best for you, you have to apply for the loan. Even if you have a pre-approval, or a pre-qualification, you still have to apply for the loan to secure the new funding. You will fill out the loan application and provide all of the documents, such as your pay stubs and bank account information, that the lender requires.
6. Use Loan to Payoff Existing Debt
A refinance can be handled two ways. One is the lender cuts you a check for the entire amount of the loan. You are responsible for paying off the original loan. You must get the payoff amount from the existing lender and pay that amount. Be sure that the pay off amount is a current amount. The last thing you want is to think you paid off the loan and there is money left to pay. Handling the refinance this way gives you peace of mind that the loan is paid in full. The other way a refinance can be handled is the new lender pays off the old lender directly.
In this scenario you do not have to be involved in paying off the old lender. This is easier on you because you don’t have to be in contact with the previous lender. The new lender will be sure to pay the amount in full and there won’t be a need for any extra payments.
When Should You Refinance a Personal Loan With the Same Lender?
You should only refinance a personal loan with the same lender when it put you in a better financial position. If you are in a situation where you need to decrease your monthly payment, refinancing a personal loan with the same is a better option than accruing more credit card debt. If refinancing gives you a lower payment amount, a better interest rate, or a shorter repayment schedule, then it might be right for you.
In some cases, when you refinance, you may be able to borrow more money. This allows you to pay off additional debt that you have accrued with a payment you can afford.
Do not skip over the important steps of checking your financial health. Check your credit report and make sure there are no errors. Look at your credit score and see where you fall. Make sure your debt to income ratio is in a healthy place. Compare loan options.
Do not go with the first lender you fine. Do some personal loan shopping. There are many options available to you. Calculate the fees that you pay with your refinance. Make sure that even with the fees, the refinance is still worthwhile.
Some lenders charge you a fee when you pay off your loan early. Check to see if your existing lender is going to charge you to pay off your loan early. If so, factor that in to the cost of the refinance to ensure it’s worth it. Check to see if the new lender has an early payoff fee just in case. You may find yourself in a position to pay the new loan off early. You want to know if you will be charged to do so.
There are many things that could impact the interest rate you get with your loan. Your credit score impacts the loan options available to you. If you have bad credit, you may be penalized with additional fees. Be sure that you understand all the details of your loan, including the fine print. If you have any questions, ask them. Do not sign any documents until you completely understand them.
Compare and Shop Personal Loans
There are many loan options available to you. There are tons of websites that will help you compare and shop personal loans. Many of these sites are user friendly and easy to navigate. To start, you put in the amount you want to borrow, the reason, and your credit score. The website gives you a list of lenders and what options they have available that for which you might qualify.
I say might because this is all theoretical until the lender has checked your credit score and history. These sites give you a good idea of what loans might be available to you.
Conclusion
Refinancing a personal loan from the same lender may be a good option for you to decrease your current loan payment. You may find significant savings in your monthly payment, or in the total amount that you pay for the loan. There are some things you should consider before jumping in. Always look at the fees you have to pay. Always look at how much money you will be paying back in the long run.
Always read the fine print. Make sure you understand all the terms of the loan. Ask questions. If you are saving yourself money and repayment time, then a refinance may be the answer for you.
Julia Peoples is a long-time business manager focused on providing decision making assistance to the public. She works with people at key points of their lives who are making important retirement and financial decisions. She has had many articles published that educate the public on sound financial decision making.
Julia writes for those who are working towards financial freedom or a better understanding of how finances work. She has shared her financial insights with individuals on a one on one basis for years.