Can I refinance a personal loan with bad credit?

Yes, it is possible to refinance a personal loan with bad credit, but your options will be limited and the interest rate may be higher than what you currently have. Some lenders specialize in borrowers with lower credit scores, but they often charge higher rates and fees. Improving your credit score before applying can increase your chances of getting a better deal.

Does refinancing a personal loan hurt your credit score?

Refinancing can temporarily lower your credit score by a few points due to the hard credit inquiry from the new lender. Additionally, closing the old loan can shorten your average account age, which may also affect your score. However, if you make on-time payments on the new loan, your score can recover and potentially improve over time.

Is it worth refinancing a personal loan?

It depends on your individual situation. Refinancing is generally worth it if you can lower your interest rate by at least 1–2 percentage points, reduce your monthly payment, or shorten the loan term without causing financial strain. Consider the total cost of the new loan, including any origination fees, and compare it to the savings from the old loan. It is a general guideline that you should run the numbers before making a decision.

Refinance Personal Loan: A Complete Guide

Reviewed by the LoanPolicies Editorial Team · Updated 2026-09-05

Wondering if you can refinance a personal loan? Learn how to lower your interest rate, adjust your loan term, and reduce monthly payments with this balanced guide.

Refinancing a personal loan means taking out a new loan to pay off an existing personal loan, often with the goal of securing a lower interest rate, adjusting the loan term, or reducing the monthly payment. The new loan replaces the old one, leaving you with a single monthly payment under new terms. This guide explains the basics, when it makes sense, and what to watch for — it provides general educational information, not personalized financial advice.

What Does It Mean to Refinance a Personal Loan?

When you refinance a personal loan, you apply for a new loan from a lender (which may be the same or a different lender). The new lender uses the funds to pay off your existing loan balance. After that, you make payments on the new loan according to its terms. The goal is usually to improve your financial situation — for example, by lowering the interest rate, shortening the loan term to pay off debt faster, or extending the term to reduce the monthly payment.

When Should You Consider Refinancing?

Refinancing isn’t always the right move. It works best when your financial profile has improved since you took out the original loan, or when market conditions have changed. Here are common situations worth considering:

Your credit score has improved — A higher credit score can qualify you for a lower interest rate and better terms.
Interest rates have dropped — Even a small reduction in APR can save you money over the life of the loan.
You want to shorten the loan term — Paying off the loan faster reduces total interest costs, even if the monthly payment is higher.
You need a lower monthly payment — Extending the loan term can free up cash flow, though it may increase total interest paid.
You want to switch from a variable to a fixed rate — Fixed-rate loans offer predictable payments and protection from rate increases.
You’re unhappy with your current lender’s service — A better experience with a new lender may be worth the effort.

Key Factors to Compare When Shopping for a New Loan

Comparing loan offers is essential. Use the table below to evaluate the most important features:

Factor	Why It Matters
Interest Rate	Determines the cost of borrowing; a lower rate reduces total interest.
APR (Annual Percentage Rate)	Includes the interest rate plus fees, giving a more complete cost picture.
Loan Term	Shorter terms mean higher monthly payments but less interest; longer terms lower payments but cost more over time.
Monthly Payment	Must fit your budget; a lower payment can improve cash flow, but may extend the loan.
Origination Fee	An upfront fee charged by the lender, often a percentage of the loan amount; it adds to the total cost.
Prepayment Penalty	Some lenders charge a fee if you pay off the loan early; avoid loans with this penalty.

How Your Credit Score Affects Refinancing

Your credit score is one of the most important factors lenders consider when you apply to refinance. A higher score typically qualifies you for lower interest rates and better loan terms. Generally, a score above 700 is considered good, while scores above 740 are often eligible for the best rates. If your credit score has dropped since you took out the original loan, refinancing may not be beneficial — you might end up with a higher rate. Before applying, check your credit report for errors and take steps to improve your score, such as paying down credit card balances and making all payments on time.

Steps to Refinance a Personal Loan

If you decide refinancing is right for you, follow these general steps:

Check your credit score — Know where you stand before applying.
Gather your loan details — Note your current loan balance, interest rate, monthly payment, and remaining term.
Shop around — Compare offers from multiple lenders, focusing on APR, fees, and repayment terms.
Prequalify if possible — Many lenders let you see potential rates with a soft credit check that won’t hurt your score.
Submit a formal application — Choose the best offer and complete the application, which may require a hard credit inquiry.
Review the loan agreement — Read the terms carefully, including any fees, penalties, and the repayment schedule.
Close the loan — The new lender will pay off your old loan, and you’ll begin making payments on the new loan.

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