How to Save Money by Refinancing Your Personal Loan

• Author: Jenny Wolff
• Posted: 2026-01-13

With interest rates on the rise, people are looking for ways to cut costs on their personal loans.

Refinancing to a lower rate can help you save a substantial amount of money over the lifetime of your loan.

In this article, we'll explore when and how to refinance personal loans to maximize savings.

 

When Does Refinancing Make Sense?

The first question to ask is if refinancing will actually lower your rate.

Compare your current rate to the rates you're being offered. Many experts recommend refinancing if you can get at least a 0.5% lower rate. This can add up to thousands in interest savings over the loan term.

You should also consider refinancing if you have improved your credit score since taking out your original loan.

A higher score means you may qualify for a lower rate. Even a small rate drop of 0.25% could be worth refinancing.

Finally, refinancing longer-term loans of 3+ years can lead to big savings. You have more time for the lower rate to accrue interest savings.

Shorter-term loans usually aren’t worth the refinancing costs.

 

How to Get the Best Refinance Rate

Shop around with multiple lenders to find the lowest rate. Compare fixed and variable rates to see which offers more savings.

Online lenders like LendingTree and SoFi often beat banks' rates.

Improve your credit score if needed to qualify for better rates. A score over 720 will get the best rates. Pay all bills on time and lower credit utilization to boost your score.

Opt for the shortest term you can afford. You’ll pay less interest over the life of the loan. Be sure you can handle higher monthly payments though.

 

Weigh the Costs

Closing costs are typically 2% to 5% of the loan amount. You’ll usually break even if you refinance for at least 2 percentage points lower.

Crunch the numbers to see if costs are justified by interest savings.

Prepayment penalties can make refinancing expensive. Check your original loan agreement to see if you’ll incur fees for paying off early. Ask lenders if they’ll cover closing costs to offset penalties.

Refinancing federal loans into a private loan means losing flexible repayment options. Make sure you won’t need income-driven plans or loan forgiveness before refinancing federal loans.

 

The Bottom Line

Refinancing personal loans at a lower rate can lead to substantial interest savings over the loan term.

Shop around for the best rates and weigh closing costs before moving forward. With careful planning, refinancing can be a savvy financial move.