20 Dec 2018 | Written by Ana Elliot
Sometimes, life puts us in situations that aren’t always pleasant or what we had planned. In those moments, we might face financial difficulties that need to be addressed immediately and, in a lot of those cases, we might end up taking out a personal loan - an installment loan or other.
If that sounds like something you have had to deal with, don’t worry, you are not alone. The prevalence of personal loan lenders is a testament to how many people are put in positions where that’s there only option.
But what happens when the short term benefit of the loan turns into months and months of high interest and payments? Maybe, at that point, it is time to think about refinancing your personal loan.
It’s not in the best interest of every person and situation to refinance a loan, but, if you find yourself in a few specific situations, it might be in your best interest to look into refinancing.
A few of these situations are as follows: First, is your interest or payments too high and can that be changed? If your interest rate is too high and your credit score has improved recently, you can probably get a new loan at a lower interest rate which will save you money in the long run.
This of course only works if your credit score is in a good place, so make sure to get your payments in on time! If your payments themselves are too high, refinancing can help you get lower payments by getting a longer loan period.
While this will end up costing you more in the long run (that interest is a killer!) it can help give you more money every month for your immediate expenses.
Another thing to consider about your situation is if you have variable rate interest. Switching to a fixed rate interest can help you save money as well as help you with some consistency.
Lastly, if you want to pay off your loan faster, refinancing might before you. If you want this sucker gone ASAP refinancing to a short-term personal loan can help you save on the total interest. You would have to be okay with higher monthly payments for this to truly benefit you.
So, you’ve assessed your situation and you think refinancing would be helpful. What should you do? First, you want to look at a variety of lenders and get prequalified.
This will allow you to pick the best lender for you and your needs. If you need a list of lenders that are great for refinancing, check out this one put together by NerdWallet: click here. So, once you find your lenders, you need to sit down and assess the costs. This includes the new loan’s interest rate and fees as well as if there will be any penalties or costs for paying your current one early.
If all of that adds up to something that benefits you, go ahead. Use the new loan to pay off the old one (and make SURE the old one is fully closed out!). Then you just go ahead and start paying the new one.
As you can see, there are lots of things to keep in mind. There are things that are pros for some that would be cons for others: A shorter term loan is great for people trying to pay it off faster but horrible for those with strict monthly budgets! A longer-term loan is great for smaller payments but awful for the total interest. Origination fees (fees for taking out a new loan) can often be high (0-8%) and that might not be in your best interest. But, for others, the origination fee might still prove savings in the long-term. The important thing is to assess your unique situation and do your research on the refinancing loans available to you. So please, keep all of this in mind. Refinancing should not be something you go into lightly but, if it is done right, it could be something that helps you feel lighter in the long run.