How to Refinance a Personal Loan: 5 Steps (2026)

Refinancing a personal loan typically makes sense when you can drop your APR by at least 100 bps and you have enough remaining balance + term for the savings to compound. Here's the 5-step process.

Steps

  1. Check your current loan's APR + remaining term Pull up your latest statement. Note the APR, remaining balance, and remaining term in months. Refinancing only pencils if (a) new APR is at least 100 bps lower than current, and (b) remaining balance × term is large enough for the savings to matter (typically $10K+ remaining and 24+ months).
  2. Pre-qualify with 2-3 lenders using soft-pull SoFi, Marcus, Discover, and Best Egg all offer soft-pull pre-qualification — you'll see real personalized rate quotes without any credit-score impact. LightStream is the exception (requires hard pull). Pre-qualify with at least 3 lenders to compare real numbers, not advertised 'as low as' rates.
  3. Compare offers — focus on APR, not interest rate APR includes any origination fee. A 12% APR loan with a 5% origination fee costs the same total as a 12% APR loan with no fee. Apples-to-apples is APR figures across lenders. Also check term length — taking the same APR over a shorter term saves significant total interest.
  4. Apply with the winner (hard inquiry) Once you've picked the best quote, the actual application runs a hard credit inquiry plus income verification (W-2s or recent tax returns, paystubs). Inquiry costs 5-10 FICO points and ages off in 12 months — minor compared to the rate improvement.
  5. Use the new funds to pay off the old loan Many refi lenders (Discover, Best Egg) pay off your existing creditor directly. If yours doesn't, transfer the funds to your old loan as a payoff. Confirm with the old lender that the loan is closed — sometimes a residual balance can accrue if not zeroed out cleanly.

Frequently asked questions

How much should the new APR be below my current rate?

Generally at least 100 bps (1 percentage point). On a $20,000 balance with 36 months remaining at 12% vs 11% APR, you save roughly $400-$500 over the term. Below 100 bps, the hard-inquiry cost + application overhead rarely justifies the math.

Will refinancing hurt my credit score?

Short-term yes, slightly — the hard inquiry costs 5-10 FICO points and ages off in 12 months. Long-term, on-time payments on the new loan build positive history. The credit-utilization impact is neutral (one installment loan replacing another).

Can I refinance multiple times?

Yes — there's no limit. Some borrowers refinance every 12-18 months as credit improves and rates drop. Each refi triggers a new inquiry; if your credit is improving, the rate savings typically compound across refis.