Refinance

Refinance summary:

Refinance means to replace an existing loan with a new one.
Many types of loans are eligible to be refinanced, including mortgages, personal loans, car loans, and others.
A common reason to refinance is to reduce interest costs by getting a loan with a lower interest rate. Optimizing your debt in this way could help you reach your financial goals more efficiently.

Refinance definition and meaning

Refinancing is when you replace an existing loan with a new loan. You take out a new loan and use it to pay off the old one. Two common reasons to refinance a loan are to get a lower interest rate or to reduce monthly payments.

Refinancing could give you more control over your finances. If you get a new loan with a lower rate, refinancing could help you save on interest, too.

Key concept: A refinance is when a borrower replaces an existing loan with a new loan.

Refinance: a comprehensive summary

It’s possible to refinance various types of debt, including personal loans, auto loans, student loans, and mortgages. When you refinance a loan, the terms of the new loan, such as the interest rate, amount, and repayment term, may differ from the terms of the original loan.

A refinance could be an option to explore if you want to reduce your monthly payments. That’s one possible outcome, especially if you opt for a longer repayment term.

Refinancing could be especially helpful if you qualify for a loan with a lower interest rate. That could either help lower your monthly payment or reduce your total interest charges (or both). Most of the time, it doesn’t make sense to refinance to a loan that has a higher interest rate.

If your new loan is bigger than the loan you’re refinancing, it’s called a cash-out refinance. You pay off the old loan and get the difference in cash that you could use to pay off other debts or for some other expense.

Borrowers often refinance personal loans

to lower interest costs, consolidate more expensive debts, and lower monthly payments.

Sometimes homeowners want extra cash without refinancing their current mortgage. If rates are higher now, giving up your lower mortgage interest rate might not be desirable. In that case, a great alternative to refinancing is a home equity loan

. If you have enough home equity

and you meet the lender’s borrowing requirements, you could access cash without refinancing your current home loan.

Before refinancing a loan, review all details of the new loan to know what to expect. Ensure you understand the loan length, interest rate, repayment terms, total interest charges, and any fees you'll pay, such as closing costs. This way, you can compare the refinance loan to your existing situation and make a more informed choice that aligns with your goals.

Refinance FAQs

Can I refinance a personal loan with the same lender?

Whether you can refinance a personal loan with the same lender depends on the lender's policies. Some might allow you to refinance to keep you as a customer, while others may not.

At Achieve, if you qualify, you can refinance an existing personal loan with a new personal loan. We love it when we can help a customer improve their financial life.

Is it cheaper to get a refinance or a HELOC?

Either option can save you money, depending on the circumstances.

Most mortgage loans, including cash-out refis and HELOCs, have closing costs between 1% and 5% of the loan amount. Mortgages with no closing costs have higher interest rates, so in the long run, they don’t cost less than mortgages with closing costs.

Cash-out refinance mortgages typically have lower interest rates than HELOCs. However, if you already have a low-interest rate on your existing mortgage, a cash-out refinance can increase the cost of paying off the money you still owe.

A HELOC could save you money by allowing you to borrow and pay interest only on the amount you need. On a cash-out refinance, you’ll pay interest on the entire loan amount from day one, even if it’s more than you needed.

How can you lower your interest rate without refinancing?

You may be able to lower your interest rate simply by asking your lender for a discount. They may agree to offer a reduced rate if you have a good credit history and can demonstrate your ability to repay the loan on time. You could also enroll in autopay to get a rate discount if your lender offers that benefit.