We’ve all been through times in our lives when we could use a bit of extra cash. Whether it’s an unexpected situation or a big life event like a wedding, sometimes you just don’t have the cash on hand.  

In other cases, you may not want to drain your savings or your emergency fund fully to cover the costs. Personal loans can also be especially useful for consolidating high-interest debt like credit card bills.  

Regardless of the exact circumstances, as with any loan, you’ll want to make sure that you are getting the best possible savings with your personal loan. Typically, this means having a personal loan with the lowest APR*.  

But what happens if your personal loan is costing you more than it should? The good news is that you’re never stuck, and you can almost always refinance your personal loan to get a better rate.  

We’ll walk you through why you may want to refinance a personal loan and how to go about it.  


How Personal Loan Refinancing Works  

Refinancing is the act of paying an existing loan with a new loan. It’s as simple as that. You take out a new loan that you use to pay off the remaining balance of your old loan, at which point you assume the new loan and transition to making payments on it.  

In many ways, refinancing a loan is similar to taking out the original loan. Many of the same principles apply. You’ll want to review your options, compare the various rates and terms available, and get prequalified.  

Step by step, here’s the process:  

1. Understand the terms and conditions concerning refinancing 


You may find that some loans have prepayment penalties written into their terms and conditions. Before you refinance, you’ll want to make sure that this isn’t the case — or at least be aware of any of these costs. Ensure that you understand how long it will take to recoup any costs associated with refinancing. 

2. Review your options

You’ll probably find that credit unions have lower rates across the board than large banks. Credit unions like University Credit Union are not-for-profit and member-owned. This allows them to offer competitive rates on loans.  

3. Apply for prequalification 

Prequalification enables you to determine how much money you can get approved for and at what rate.  

4. Pay off the old loan

With personal loans, the money from the new loan will likely be deposited in your  account directly, at which point you will pay off the old loan.  

5. Transition to making payments on the new loan

Now that the hard work is done, continue making payments on your new loan as normal.  


Reasons to Refinance a Personal Loan 

In general, people typically refinance to save money. However, in other cases, if something has changed with your finances and you simply cannot afford your monthly loan payments, you can also refinance to reduce these payments.  

Keep in mind, though, that if you extend the term of your loan, you will likely spend more money in interest over the life of the loan.  

In general, the most common reasons to refinance include: 

  • You want to save money over the life of the loan. 
  • You can afford to pay more per month and want to shorten your term. 
  • You cannot afford your monthly payment and want to extend your term. 
  • You want to switch from a variable-rate to a fixed-rate loan.  


When Refinancing Can Save You Money 

If you want to refinance, you’ll want to make sure that it will save you money, not cost you more.  

Your original personal loan didn't have the best rate 

This can happen if you don’t compare rates or perhaps you just missed out on an excellent rate. 

Interest rates have dropped

Interest rates in the US fluctuate over time based on the market. Monitoring interest rates can help you know when the best time is to refinance.  

Your credit score has significantly improved

If you’ve been careful with your finances and your credit score has improved, you may be able to access better rates than you could before, saving you money.  

University Credit Union offers a Lowest Loan Rates in the Nation Guarantee1 to get you the money you need at the lowest possible rate. You can view our competitive rates by clicking the button below!   


See our low rates