Pros and Cons of Refinancing a Personal Loan
When researching to learn more about refinancing a loan you may have come across our blog refinance your personal loan: how and when to do it, this blog gives you the basic information surrounding the best actions to take when planning to refinance. This blog links in by explaining what are the pros and cons of refinancing a personal loan.
Keen on the idea to refinance your loan yet still weighing up whether it is a good option? Take a look at this blog where we share the top three refinancing pros and cons.
Overview
- What are the advantages of refinancing a personal loan?
- What are the disadvantages of refinancing a personal loan?
- Does refinancing a personal loan hurt your credit score?
What are the advantages of refinancing a personal loan?
1. Lower interest rates
It’s common knowledge that interest rates fluctuate. You may find that by refinancing your personal loan, you are able to achieve a lower interest rate. Having a lower interest rate will save you money in the long run and may even help you pay off your debt faster.
2. Shorter loan terms
If your financial situation has improved, particularly if you have managed to secure a lower interest rate, you may find you’re able to make higher monthly repayments and a shorter term. A shorter loan term means you reduce the amount of overall interest you would have paid on a longer term, saving yourself money.
3. Consolidate your debts
If you find that you have multiple debts across multiple providers, it can be difficult to keep track of your repayments. It also means you may be paying significant amounts of interest. Refinancing your personal loan can allow you to consolidate your debts into one easy and simple repayment, while helping you reduce the amount of interest you pay.
What are the disadvantages of refinancing a personal loan?
While refinancing may seem like the perfect solution, it’s important to consider the disadvantages so you are fully prepared when you make your decision.
1. More fees
With any new loan there are often upfront fees and charges that can hit your wallet hard. So it’s important to consider whether refinancing is really worth any extra costs that may come your way.
2. Prepayment penalties
Be careful when considering using one loan to pay off another as you may be charged prepayment penalties. A prepayment penalty is a fee that some lenders charge when a loan is paid off early and these fees can be quite high depending on the loan amount. It’s important to work out whether the prepayment penalty will negate the benefits of refinancing your personal loan.
3. Impacted credit score
As refinancing still involves applying for a ‘new loan’ it can temporarily lower your credit score. Although this dip in your credit score is temporary, it can be a factor to consider when timing your loan application.
Does refinancing a personal loan hurt your credit?
Refinancing can have a positive or negative impact on your credit score depending on how you manage your debt. For example, if you are consolidating multiple debts into one loan, you may find it easier to make payments on time, which would help improve your credit score.
To avoid hurting your credit score when applying for loans, ensure you always:
- Check your current credit score: checking your own credit score is important as this will help you decide what loans you are eligible for. Checking your credit score yourself is free and does not impact your score.
- Read the terms and conditions: before applying for any loan, always read the terms and conditions to ensure you are eligible for the loan.
- Check for fees: always check for any fees that you may be charged throughout the loan process. This can include prepayment fees, application fees, and admin fees. Loan fees can impact how much you need to borrow and how much you are eligible to borrow.
- Check the interest rate: your interest rate may change when you apply to refinance a loan. Make sure you understand what you will be paying before you sign a loan agreement.
Researched all the information you need and want to refinance your personal loan? Swoosh has you covered
After reviewing the refinancing pros and cons and whether you are looking to refinance or applying for a loan, Swoosh has you covered. You can start by applying with the loan you need, either a bad credit loan to refinance or start off with a small loan with us today. If you are still struggling to find what is right for you, you can always seek a professional financial advisor for support.
Our application process is quick and easy, with 100% of the process online and straightforward. Apply online with Swoosh today!
