How and When You Can Refinance Your Personal Loan

Yes, you can refinance a personal loan as long as you meet your lender’s eligibility requirements. Refinancing simply means taking out a new loan to pay off an existing one, often to secure better terms, lower your rate, or change your repayment schedule.

Common reasons why you might want to pursue a personal loan refinance include:

• You’ve improved your credit score and become eligible for a lower rate.
• You want to consolidate high-interest credit card debt or other debts into a single fixed payment with a refinanced personal loan.

For high-income professionals and business owners, refinancing a personal loan can provide flexibility and measurable interest savings if structured correctly.

While you should calculate your payment and interest savings based on your own loan details, let’s look at a hypothetical example to see the potential impact of refinancing.

Imagine you refinance a $40,000 personal loan from an 18% APR to 12% APR over a 7-year term. This move could lower your monthly payment by about $135 and save you roughly $11,300 in interest, assuming a fixed repayment schedule and no fees.

Here's an example of savings using a $40,000 personal loan on a 7-year term:

You can often refinance as soon as you begin repayment but check your loan contract and lender’s policies. Additionally, there’s generally no hard limit on how often you can refinance a personal loan. However, an important question is whether it makes financial sense, as refinancing repeatedly can wipe out the benefits if fees and interest raise your costs.

Generally, refinancing your personal loan is most effective when your credit improves, market rates fall, or your financial priorities change (such as wanting to speed up your payoff or lower your payment to better suit your cash flow).

To have the best chance of qualifying for a personal loan refinance and to understand your savings, prepare your finances for the process and gather the information your lender will need. Once you reach the actual application stage, the process is usually straightforward. We recommend following these steps to refinance your personal loan.

1. Check your eligibility

Lenders will look at your credit score, credit history, and income to determine whether your financial situation justifies offering you a new loan. Plus, you’ll usually need to have a minimum remaining loan balance to qualify for a refinance.

Take these key steps to verify your eligibility:

• Pull your credit reports: Use AnnualCreditReport.com to get your reports from the three credit bureaus—Experian, TransUnion, and Equifax. Look for any issues that could harm your credit score or affect your chances of approval, such as account balances, reported delinquencies, or bankruptcies.
• Calculate your debt-to-income ratio: Lenders that offer personal loans often look for a debt-to-income ratio below 36%, though some (like BHG) might accept higher ratios, especially if you are a high earner.
• Check your personal loan balance: Refer to your latest loan statement to see your remaining balance and compare it with your potential lender’s requirements.

2. Evaluate the cost of refinancing your personal loan

A smart refinance adds up on paper: Look at total costs, not just the advertised rate.

The key costs to review include:

• Origination fee: This helps cover the costs of processing, underwriting, and funding your new loan. It often ranges from 1% to 10% of the new loan amount and is sometimes deducted from the loan proceeds.
• Prepayment penalty: While BHG Financial doesn’t charge this fee, some other lenders penalize you for paying off a loan early. You might pay a flat amount or a percentage of your remaining balance or interest.
• Third-party charges: You might also encounter additional costs, such as documentation, verification, or transfer fees.

To confirm that refinancing is the right decision for your debt, compare the total cost of your current loan against the total cost of the new loan. Then, calculate your break-even point, or the time it takes for monthly savings to exceed upfront fees.

3. Find the right lender for you

To make sure you choose the right lender, consider prequalifying with the ones you are interested in so you can compare rates, monthly payment amounts, and other terms without impacting your credit score.

Once you have multiple prequalification offers, compare each with these criteria in mind:

• APRs
• Fees
• Loan amounts
• Repayment term options
• Approval and funding time
• Fund disbursement methods (directly to your creditors or to you)
• Customer service responsiveness

Make sure to check reviews as well—Trustpilot and the Better Business Bureau are great sources for real customer feedback.

4. Submit an application

When you’re ready, fill out a full refinance application. Be prepared to provide the following items to your lender:

• Government-issued ID
• Proof of address
• Proof of income (pay stubs, W2s, 1099s, or tax returns)
• Details on existing debts and the personal loan you’re refinancing

After you submit your application and documentation, your lender will let you know if it needs anything else. Once approved, your lender will disburse your funds via the chosen method. Be sure to verify the exact process and timing.

5. Pay off your existing loan and begin repayment

If your new lender gives you the loan funds directly, you’ll need to contact your original lender to arrange for payoff. Otherwise, your new lender will handle the process for you.

Either way, make sure your old loan is fully paid. Also, until you receive written confirmation, continue making payments on the original loan to avoid late fees or negative credit score impacts.

Finally, set up autopay on your new personal loan. Not only will this save you the hassle of scheduling monthly payments, but it will also help you avoid late payments and maintain a good credit score. Some lenders offer small autopay discounts.

If you’re carrying multiple debts—such as credit cards, personal loans, or medical bills—you can often consolidate them as part of a refinance. By rolling balances into one new personal loan, you can enjoy easier debt management with these benefits:

• One fixed monthly payment and a clear payoff timeline
• Potentially a lower APR if you qualify for a better rate (especially versus high-interest credit cards)
• A structure aligned to your goals, whether that’s a shorter term to minimize interest charges or a longer term to give your budget more breathing room.

But before including debt consolidation in your refinance plans, consider these factors:

• Total cost: The Consumer Financial Protection Bureau advises personal loan borrowers to review their loan documents and account for all associated costs of taking out a new loan, such as origination and documentation fees. Plus, account for prepayment penalties that may apply to the debts you’re consolidating.
• Disbursement method: Some lenders pay creditors directly, while others give you funds to pay them off yourself. Ask your lender about the process and timing so you know what to expect on your end.
• Credit card habits: After consolidating your credit card debt, consider keeping your cards open to preserve your credit history, as the average account length is a factor in your credit score. It’s also smart to avoid adding new balances and use autopay to stay on track.  
• Payoff strategy: If you can afford it, pay more than the monthly minimum to reach your target payoff date faster and reduce your total interest. You can also make extra payments and apply any windfalls, such as bonuses, toward your principal.

BHG Financial offers high-limit unsecured loans of up to $250,000¹ to qualifying clients, with fixed, predictable rates and terms up to 10^1,2 years. Prequalifying won’t impact your credit score,³ and you’ll enjoy U.S.-based concierge support along the way.

Our team can help you create a refinance and consolidation plan that aligns with your goals. We also offer quick approval decisions and funding in as few as five days.⁴

Ready to learn more about how you could save money and improve your cash flow? Speak with a BHG expert or explore BHG’s personal loan options today.

How do I get the best personal loan refinance rate?

To get the best personal loan refinance rate, boost your credit score by making on-time payments, lowering your credit card utilization, and correcting errors on your credit reports. Reduce your debt-to-income ratio by paying down revolving balances or increasing your reportable income. Also, shop around for lenders and ask about potential rate-reducing options, like enrolling in autopay.

Will refinancing a personal loan affect my credit score?

Refinancing a personal loan can initially cause a small, temporary dip due to the hard inquiry required to fund. If you consolidate credit card balances into an installment loan, your revolving utilization may drop, which can benefit your score.

Is refinancing a personal loan right for me?

To decide whether refinancing is right for you, ask yourself whether your total interest and fees will decrease and what your break-even point is. Also, consider the purpose of refinancing, such as changing your monthly payment (which affects your term decision and interest costs) or consolidating high-interest debt to save money. Plus, check on potential prepayment penalties or timing issues.