When does it make sense to refinance a personal loan?
Refinance when the new APR is at least 2 percentage points lower than your current one AND the origination fee on the new loan is under 3%. Also consider it if you need a longer term to lower the payment or a shorter term to pay off faster without origination fees eating the savings. Avoid refinancing in the last 12 months of an existing loan.
Context
The math test is simple. Take your current loan's remaining balance and remaining months. Calculate total remaining interest at the current APR. Then run the same balance at the new APR over the new term, adding the origination fee on top. If the new total cost is meaningfully lower, refinance pays off.
The two situations where refinancing is almost always a mistake: late in the loan when most interest is already paid (the fee outweighs savings), and stretching the term significantly longer just to lower the monthly payment (you save monthly cash flow but pay more total interest).
Credit profile improvements are the most common refi trigger. A 60-point score increase after 18 to 24 months of on-time payments can drop APR by 5 to 8 percentage points, easily justifying the fee.
- Reviewed by
- Compliance Review
- Last reviewed
- June 15, 2026
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