Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Mar 14, 2013

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Personal loans can be refinanced, but that option is only accessible to those with positive borrowing history.

Consumers are likely to refinance a personal loan to reduce monthly payments, to access additional cash, or to extend their loan’s final due date.

If a borrower has a personal loan for an extended period of time, and is making routine payments on it, it is possible that their credit score has improved. If this is the case, refinancing a loan could offer the borrower a lower interest rate.

Gail Cunningham, vice president of membership and public relations at the National Foundation for Credit Counseling (NFCC), said if a borrower decides to refinance to lower their payment, they should be careful.

“Just like when refinancing a home, you don’t want to extend the term of the loan, but instead rely upon the lower APR for the savings,” she said.

APR stands for annual percentage rate, which is a measurement commonly used for determining the true cost of a loan.

The second reason people refinance personal loans is to access additional cash. Borrowers can request additional funds and group the previous loan into a new payment.

When a personal loan is refinanced, the due date can be extended depending on the repayment plan the borrower and lender agree upon. This can be either positive or negative depending on the borrower’s financial standing. While extending the repayment period will likely reduce each payment amount, it does force the borrower to keep his or her debt longer.

Personal loan borrowers should be careful for their future when deciding to refinance. It can be problematic because it only extends the issue.

“Refinancing may be putting a band-aid on the problem, as the piper has to be paid at some point,” Cunningham said.

Refinancing a personal loan is an option for responsible borrowers. Similar to the process of initially acquiring a loan, borrowers need to re-apply for a refinance. They can either be approved or denied. An improved credit score and stable repayment history shows lenders that refinancing is a suitable option for the borrower.