Personal Loan Refinance

Personal loan refinancing means replacing your existing loan with a new one that offers better terms. You take a fresh loan to pay off the current one, usually to get a lower interest rate, reduced EMI, or better repayment terms.

Many borrowers opt for personal loan refinancing when:

• EMIs become difficult to manage due to high monthly payments

• Interest rates have dropped, allowing them to save on loan costs

• Another lender offers better terms, such as a lower interest rate or a longer repayment period

There are several banks and NBFCs providing personal loan refinancing options in India. Here are some of the top lenders who offer to refinance your personal loans: 

Refinancing your personal loan can be a smart choice in certain situations. Here are some reasons why you might consider it:

• A lender is offering a lower interest rate

If another lender offers a better deal on interest rates, refinancing can help you reduce your EMI and overall loan cost

• Your income has increased

If your earnings have grown significantly, you might want to repay the loan faster. Refinancing allows you to choose a shorter tenure, helping you clear your debt sooner.

• Your credit score has improved

A higher credit score can make you eligible for better loan terms, such as lower interest rates and reduced processing fees. Refinancing at this stage can help you secure a better deal.

• You want to extend your repayment tenure

If your EMIs are too high, refinancing can allow you to extend the loan tenure, making monthly payments more manageable

• You need to add or remove a co-applicant

If you wish to add or remove a co-borrower, refinancing creates a new loan agreement, allowing you to update the loan structure as needed

Here are some key types of refinancing options available to you:

Rate-and-term refinancing

Adjusts your interest rate, loan term, or both without changing the loan amount. For example, switching from 12% interest for 5 years to 10% for 3 years can lower costs.

Cash-out refinancing

Lets you borrow more than your current loan balance and take the extra amount in cash. If you owe ₹1 Lakh but qualify for ₹1.5 Lakhs, you get ₹50,000 for other expenses.

Cash-in refinancing

Allows you to make a lump sum payment to lower your loan balance. If you owe ₹2 Lakhs and pay ₹50,000 upfront, your new loan will be for ₹1.5 Lakhs, reducing EMIs.

Streamline refinancing

A hassle-free process with minimal paperwork and no credit check. Best for borrowers with a good repayment history.

Refinancing your personal loan involves a few key steps to ensure you get better terms and save on interest. 

Here’s what you need to do:

1. Assess Your Needs

Calculate how much you need to borrow. Avoid taking extra, as a higher loan means more repayment

2. Talk to Your Current Lender

Check if they can offer better terms or waive prepayment penalties before switching

3. Compare Lenders

Look for better interest rates, tenure, and benefits. Read reviews and contact lenders to assess service quality

4. Check Your Credit Score

A higher score improves approval chances and helps secure better loan terms

5. Apply for Refinancing

Submit your application online or visit the lender’s branch for assistance

Refinancing your personal loans come with both pros and cons. You can get the option to consolidate multiple loans and get off burden, but at the same time, you also have to pay certain charges for processing. 

Here are some of the pros and cons listed:

Pros

• You can move from a floating to a fixed interest rate or consolidate multiple loans into one for easier management

• Since you have already repaid part of your loan, refinancing a lower balance reduces your monthly payments

• You can extend your loan term for lower EMIs or shorten it to clear your debt faster

• Refinancing helps you secure a lower interest rate, reducing your overall repayment amount

Cons

• Lenders assess your income and credit history before approving refinancing. A drop in income or a low credit score may lead to rejection

• Closing your original loan and setting up a new one involves charges like processing fees, credit report fees, and more. Always calculate these costs before deciding.

Here are some things you can consider when refinancing your personal loan:

• Consider foreclosure fees, processing fees, and other costs. Refinance only if savings outweigh expenses

• A score below 600 may lead to rejection or higher interest rates, defeating the purpose of refinancing

• It is beneficial in the early repayment years. For a 5-year loan, refinancing makes sense if done within the first 3 years

• Be prepared with identity proof, bank statements, and income documents for a smooth process

• Review all terms before signing. Seek clarification from the lender if needed