Personal Loans are one of the most straightforward and most convenient sources of finance available. Being unsecured and perceived to be riskier, personal loan interest rates are higher than other retail loans available. These are popular as the end use of finance is not insisted upon—you can utilise personal loans for varied purposes like travel, gold purchase, business or medical treatment.

Personal loans can be of assistance during a financial crisis due to any emergency, as they are available with ease and promptness in delivery. However, being unsecured, the Personal loan interest rate is higher than other loans—a factor that is generally overlooked due to the circumstances in which they are availed. Once the emergency subsides, the Personal Loan EMI may start to pinch. When the borrower may start to look for ways to reduce the EMIs, personal loan refinancing comes into the picture.

What is a personal loan refinance?

Personal loan refinancing implies a new loan to close the existing personal loan. There may be many reasons behind this, but the most crucial driving factor behind refinancing is better individual loan interest rates. Hence, before going for a refinance, the Personal loan EMI calculator available online should be utilised extensively to select the financier.

Apart from this, there may be other reasons too, to avail a personal loan refinance, some of which are:

  • Increased loan repayment tenure – Personal loan refinancing re-aligns your finances to a longer-term so that the obligations are spread over a longer-term—thereby reducing the EMIs considerably. This is a simple way to ease your monthly financial burden.
  • Improved Credit Score – Personal loan interest rates are linked to credit scores. When you take a Personal loan, the credit discipline translates into a good credit score – which is an excellent reason for refinancing.

Five steps to refinance a personal loan

Here are the steps to be followed for refinancing a personal loan:

  • Check your Credit Score – This is a crucial step when refinancing a personal loan. If feasible, get acquainted with your credit score before initiating the application to know the factors that impact the same, and you have time for improvement.
  • Monetary Requirement – Since you are taking a new loan to pay off an existing one, it is essential to ascertain the outstanding of the current loan and any foreclosure charges/penalties in exact terms.
  • Agreement Terms – Before opting for a particular lender, the borrower should compare the available options and go for the most favourable one—the critical determining factor being lower personal loan interest rates and processing charges. The personal loan EMI calculators available online come in handy at this stage to weigh in the options.
  • It is also prudent to check with existing lenders for better prevailing rates before making the switch.
  • Loan Application – Once the decision is made, you can submit your application along with requisite documents, complete the documentation and receive the credit of funds in your account. Subsequently, pay off the existing loan with these funds and repay the new loan.


Every decision comes with a cost. When you decide to refinance a personal loan, the existing lender may levy a penalty for foreclosure. Ensure that your net savings from the refinancing are more than the cost you incur in the process.

Further, if one looks at the amortisation chart, it makes sense to go for refinancing during the initial period, when the interest portion in EMI is higher. Consider all these factors before deciding to go for a personal loan refinance.

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