Can you refinance a personal loan?

Does your monthly budget get disturbed because of high-interest-rate personal loans? You always feel hand to mouth and it is becoming difficult to make both ends meet. It’s difficult to save money in this situation or you will be empty-handed for any unexpected purchases. You don’t want to sink into paying the debt at high-interest rates.

Then this article will help you enjoy a better lifestyle in Canada. How is it possible? You may think that it’s a joke. But no, there is a great way to pay off your loan and also save some dollars. What’s this? None other than Refinancing a personal loan. Want to know more about it? Continue reading.

What is refinancing a personal loan?

Refinancing refers to getting a new loan/ debt so that you can pay off the old one. So basically Refinancing a personal loan refers to replacing your current loan with a new one. Many lenders and banks have the facility to refinance your loan, so you can continue to refinance your original loan. Otherwise, get a new lender who has approved to refinance your previous personal loan with a new loan.

But the main thing is that new loans should have favorable terms & conditions. Like less interest fee or long-term repayment options, so make the new loan worth having. Do you want to get rid of a high-interest-rate personal loan? Doing it now and paying less interest will automatically reduce the monthly payment too.

Can you refinance a personal loan in Canada?

Many banks in Canada have provided you with the facility of refinancing your current loan. But if you get better repayment terms from other organizations, go for it. Why not choose a Refinancing plan, that not only reduces the interest rate but also reduces your monthly payment of a loan? It will make you stress-free and you can also save some amount for any emergency.

So we can say that it’s pretty possible to refinance an existing Personal Loan with a new favorable loan. It is better to choose a new loan that automatically pays off your inconvenient previous loan. And you have to pay a new loan with great terms. Choose a path where you pay less loan and also enjoy your dreamy lifestyle.

Purposes of refinancing a personal loan

If the current loan is stopping, you from chasing your dreams and you are not able to save some extra dollars. Then refinancing a personal loan is a good idea. Because it alters the terms & conditions of the previous loan to new desirable conditions. That helps you to attain your financial goals easily. So why not refinance a Personal Loan to achieve your goals? Because refinancing can help you in many ways. Like:

• Lower APR:

You have to pay a lower interest rate when you refinance a Personal loan. As the interest rate decreases, the monthly payment amount will also decrease. So you can save a good amount every month. Even though, if there is a minor difference in interest rate, the credit score becomes higher. This is also a better opportunity to refinance. Because the lender will not consider you as a risk and there may be a chance of a better rate.

• Longer repayment periods:

Refinancing allows you to extend your repayment period. Like if you are paying a greater amount every month to clear the debt in a year. That is difficult to pay and you get broke at the end of the month. So if you extend the repayment terms, then you have to pay less money every month. It will make the repayment manageable for you and you will not get hand to mouth.

• Faster debt-free days:

You can pay off the loan quickly, by refinancing the loan into a short repayment period. Like your salary has increased and you want to pay off debt with greater repayment per month. This is the way that your payment schedule will decrease and you become debt-free quickly.

Refinancing can sometimes affect your credit score, because when you apply for a personal loan. The lender will check your credit report by performing a hard credit inquiry. That will decrease your credit score temporarily. But if you pay your debt on time and manage the refinancing responsibly. Then the credit score will rise after some time.

How to refinance a personal loan?

Everything has its pros and cons, and so does the refinance. But if you take mindful steps then refinancing will be the best option for you.

• Choose a better refinancing option:

First of all, check and calculate whether refinancing is a better option for you or not. Look around and compare the different personal loan options in Canada. Check the interest rate, loan terms, and other fees. This will allow you to have the lowest interest rate loan with desirable terms.

• Check your credit score:

Before refinancing, review your credit score. That lets you know where you stand. If you have a high credit score, then you can qualify for a low-interest rate personal loan. You can check them from Canada’s credit agencies like TransUnion and Equifax.

• Calculate refinancing fee

Other than checking interest rates and fees, calculate the refinancing fee, origination fee, and prepayment fees too. Because these fees will also affect the total repayment cost you have to pay per month. You may choose a loan with a low interest rate but these fees will add up and make you pay more at the end.

• Prequalification

If you prequalify for a loan, then the lender will assess your loan application based on your income and salary. So there may be no need for any hard inquiry, and soft inquiry will let them know about your ability to pay the loan. You will also get the idea that you can pay off the personal loan easily.

• Apply for Loan:

Now it’s time to fill out the form and apply for the loan. Be mindful when applying for refinancing. When you apply for credit, the lender will check your credit report. That results in a hard inquiry, so if you apply for a loan multiple times. Then your credit report will get multiple hard inquiries. That leaves a bad impression on the lender.

After approval of the application, the loan is directly sent to your bank account or your previous creditor. Pay off your old loan quickly to avoid any additional charges.

Final words

Refinancing a personal loan will be great for those, who secure lower interest rates than a current loan. And to get a lower interest rate, you have to maintain a good credit score. Refinancing also works well, if you switch from a variable interest rate loan to a fixed one.

You can easily save money while paying your debt. So go for the option, that suits you and is less likely to hurt your credit score. Just try to manage the refinancing personal loan responsibly, it’s better to strengthen the credit score.