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Personal loans can provide much-needed financial assistance, but it’s important to be aware of potential scams that lead to financial loss and identity theft.

Unscrupulous lenders can hook you in by offering a loan with seemingly good terms when, in fact, you could be charged exorbitantly high interest rates and hidden fees. Scam artists, on the other hand, might take upfront fees and/or your personal information and then disappear without ever giving you a loan.

You can protect yourself, however, by understanding common personal loan scams and knowing how to identify legitimate lenders. Here’s what you need to know.

What Are Examples of Personal Loan Scams?

There are a few types of personal loan frauds that crop up with some regularity. These include debt consolidation scams, no-credit-check-loan scams, and loan fees scams. Here’s a closer look.

Debt Consolidation Scams

Debt consolidation is a legitimate way to pay off debt. It entails taking out a new loan (ideally with better rates or terms) and using it to pay off other existing loans or credit cards. There are many legitimate debt consolidation companies that can help individuals pay down their debt. And then there are scammers.

Scammers may offer debt consolidation loans that promise to lower your monthly payments and interest rates. However, they often charge high upfront fees and fail to provide the promised services, leaving you in a worse financial situation.

No-Credit-Check Loan Scams

No-credit-check loan scams target borrowers with a poor or limited credit history. There are legitimate lenders that consider factors other than your credit score, but they are likely to do at least a soft pull on your credit score (which will not affect it).

Scammers, on the other hand, often promise funds without any kind of credit check. They may ask for fees and personal information upfront and then disappear. Or, they might provide a loan but charge exorbitant interest rates.

Loan Fee Scams

Scammers may request upfront fees for processing or guaranteeing a loan. Generally, you should never pay anything upfront — it’s highly likely that your money will disappear, and you will not receive a loan. Legitimate lenders typically deduct any fees from the loan amount.

How Do I Know if I’m Being Scammed for a Loan?

Identifying loan scams requires vigilance and attention to detail. Here are 12 warning signs to look out for.

1. Phone Offers

If you receive a phone call offering you a guaranteed personal loan or unusually low interest rate, it’s most likely a scam. Reputable lenders do not cold-call potential customers. It is illegal, in fact, to make loan offers over the phone. You ‘ll want to look for lenders that advertise through traditional online and mass media.

2. Upfront Fees

While some upfront fees are charged by legitimate lenders, such as origination fees, these fees are usually deducted from the loan amount before the borrower receives the funds and only after the loan is approved. Be wary of any lender that asks for payments before providing the loan funds.

3. Wire Transfers

Scammers will often request loan payments via wire transfer. Legitimate lenders, on the other hand, typically accept payments through recognized and secure channels, such as automatic debit, online payments, or mailing a check to the lender. If you wire funds, there is no way to recover them.

4. Credit History

Be wary of lenders who claim to offer loans without checking your credit history. Trustworthy lenders typically base their loan terms on your ability to repay the loan. This involves looking at your credit, sometimes getting reports from all three major consumer credit bureaus (Equifax, TransUnion and Experian).

5. Copycat Name

Online loan scammers may use a business name or website that seems genuine. They may copy a well-known logo and website to trick you. Be sure to verify the lender’s identity by conducting thorough research online, including a lender search by name with both the Better Business Bureau (BBB) and the Consumer Finance Protection Bureau (CFPB).

6. Personal Information

Scammers will often try to get your bank account details, passwords, Social Security number, and other personal information in order to drain your checking account and/or run up charges on your credit card.

If they have enough of your personal information, they may even be able to take out loans or obtain credit cards in your name. Always check if a lender is legitimate before giving them any of your personal information.

Recommended: How to Report Identity Theft

7. State Registration

A lender or loan broker must register in the states where they do business. One way to vet a lender is to go to their website and make sure it lists the states where the company can legally conduct business. If you don’t see a list of registered states, it’s a sign the company is fraudulent.

If they do list states, it’s a good idea to verify the information with your state regulator or attorney general.

8. Reviews

It can be helpful to research the lender online and read reviews from previous customers. Genuine lenders will have positive reviews and a good reputation. You can also check the BBB’s website to see if there are complaints connected with its business profile. The BBB also has a Scam Tracker that is worth checking as well.

9. Customer Service

Reputable lenders that offer personal loans generally have phone numbers you can call and speak with a live person, rather than a chatbot. It’s a good idea to call the lender’s customer service number, ask questions, and gauge their responsiveness and professionalism. Legitimate lenders prioritize customer service.

10. Hidden Fees

Some legitimate lenders do not disclose their fees on their website; however, they are required to be transparent about fees and terms when they give you a loan offer. Be sure to carefully review loan documents for hidden fees or terms that differ from what was initially discussed.

11. Prepaid Credit Card

Scammers often request payment via prepaid credit cards. Legitimate lenders typically accept payments through secure methods, such as bank transfers or online payment platforms.

12. No Physical Address

Trustworthy lenders have physical office addresses. Be cautious if the lender only provides a PO Box or has no physical presence. If they provide an address, it’s a good idea to look it up on Google Maps or other mapping software. If their address is suspect, their services most likely will be too.

What to Do if You Are Scammed

If you believe you have fallen victim to a personal loan scam, you’ll want to take the following steps.

1. Gather Documents

Compile all relevant documents, including loan agreements, payment receipts, and communication with the scammer.

2. Contact Authorities

It’s a good idea to contact your local law enforcement — by filling out a police report, you’ll have an official record.

It’s also wise to contact agencies specializing in oversight, including your state attorney general’s office, the Federal Bureau of Investigation (FBI), the Federal Trade Commission (FTC), and the BBB. When they have your information, these agencies can better serve and protect other consumers.

3. Contact Your Bank and Creditors

You’ll want to notify your bank and credit card company about the scam. They can advise you on necessary steps to protect your accounts and finances.

4. Set Up Fraud Alerts

You may want to contact one of the three credit bureaus, Experian, TransUnion, and Equifax, and ask them to place a fraud alert on your credit report. This notifies lenders that you’ve been a victim of fraud so they can take extra measures to verify your identity when they get an application for credit in your name. You only need to contact one bureau — that bureau will contact the other two automatically.

Signs of a Legitimate Loan Company

You can be assured that a company is a legitimate lender by doing your due diligence. Here are key things to look for.

Valid Contact Information

Legitimate lenders have valid contact information, including a physical address and a working phone number.

Registered

You’ll want to make sure the lender is registered and authorized to operate in your state. You can check with your state’s regulator or attorney general.

Better Business Bureau

It’s wise to verify the lender’s rating and accreditation with the BBB. A good rating and positive customer reviews indicate legitimacy.

Good Reviews

Be sure to read reviews from previous customers to get a sense of their experiences. Legitimate lenders will have positive reviews and a good reputation.

Get a Legitimate Personal Loan

To secure a legitimate personal loan, follow these guidelines:

•  Research potential lenders thoroughly.

•  Compare loan offers and interest rates from multiple reputable lenders.

•  Read loan agreements carefully, ensuring you understand all terms and fees.

•  Ask questions and seek clarification before signing any contracts.

•  Protect your personal information and be cautious about sharing it with a lender you’re unsure about.

The Takeaway

Unfortunately, there are a lot of loan scammers out there. The good news is that you can protect yourself by familiarizing yourself with common scam playbooks and knowing how to identify legitimate lenders.

Remember to thoroughly research lenders, review loan terms carefully, and never provide personal or financial information without verifying the lender’s legitimacy.

If you’re interested in exploring your personal loan options but not sure where to turn, SoFi could help. SoFi personal loans offer competitive, fixed rates and a variety of terms. Checking your rate won’t affect your credit score, and it takes just one minute.

See if a personal loan from SoFi is right for you.

FAQ

What are some examples of personal loan scams?

There are several examples of personal loan scams to be aware of:

•  Advance fee scams Scammers ask for upfront fees before providing the loan but disappear once they receive your payment.

•  Guaranteed approval scams Fraudsters claim to offer guaranteed loans, regardless of credit history, but ask for upfront fees or personal information.

•  Identity theft scams Scammers pose as legitimate lenders and use the personal information you give them during the loan application process for identity theft.

•  Phishing scams Scammers send fraudulent emails or text messages pretending to be from a reputable lender, requesting personal and financial information.

How do I know if I’m being scammed for a loan?

Some signs that you may be being scammed for a loan include:

•  Upfront fees Legitimate lenders deduct fees from the loan amount, so be cautious if a lender asks for payment before providing the loan funds.

•  Unsolicited offers Unsolicited phone calls or emails offering guaranteed loans or unusually low-interest rates are red flags. Reputable lenders do not make unsolicited offers.

•  Unsecure payment methods Scammers often request loan payments via wire transfer or prepaid debit cards. Legitimate lenders usually accept payments through recognized and secure channels.

•  No credit check Be cautious of lenders who claim to offer loans without checking credit history. Legitimate lenders typically assess creditworthiness before approving a loan.

•  Lack of state registration Check if the lender is registered to operate in your state. Legitimate lenders comply with state regulations.

•  Negative reviews Research the lender online and read reviews from previous customers. Negative reviews or multiple red flags are signs of potential scams.

What do I do if I get scammed?

As soon as you suspect that you have been scammed, consider taking the following steps.

•  Gather documents: Collect all relevant documents, including loan agreements, payment receipts, and communication with the scammer.

•  Contact law enforcement: Report the scam to your local law enforcement agency and provide them with all the information you have gathered.

•  Contact your bank and creditors: Inform your bank or credit card company about the scam. They can advise you on necessary steps to protect your accounts and finances.

•  Set up fraud alerts: Place a fraud alert on your credit report to prevent further unauthorized activity and protect your identity and credit.

•  Monitor accounts: Regularly monitor your financial accounts and credit reports for any suspicious activity or unauthorized transactions.

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Photo credit: iStock/Moyo Studio
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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Debt consolidation is a debt payoff strategy that involves taking out a new loan (often a personal loan) to pay off high-interest debts in an effort to streamline monthly payments and save money on interest.

While it can be challenging to get a debt consolidation loan if you have bad credit, you aren’t necessarily out of luck. Some lenders look at factors beyond credit score, such as your income and job history. There are also several actions you can take to increase your odds of getting approved for a debt consolidation loan. Here’s what you need to know.

How to Get a Debt Consolidation Loan With Bad or Average Credit

Even with fair or poor credit, you can often still qualify for a debt consolidation loan. Here are a few ways to increase your chances of getting approved.

Check Your Credit Reports

Before you apply for a debt consolidation loan, it’s a good idea to comb through your credit reports (you have three) to see if there are any errors that could be negatively impacting your score. You can check your credit report for free at each of the credit reporting bureaus credit bureaus (Experian, Equifax, and TransUnion) using AnnualCreditReport.com .

If you notice any incorrect information (such as wrong accounts, incorrectly reported payments, inaccurate credit limits, or partial information), on any of your reports, you’ll want to reach out to the appropriate credit union and file a dispute. By law, the credit bureaus usually have up to 30 days to review your claim and respond.

Shop around

You can find personal loans for debt consolidation at local banks, national banks, credit unions, and online lenders. To find the best deal, it’s a good idea to shop around and compare qualification requirements, loan amounts, repayment terms, and fees from multiple lenders. You can often prequalify for a loan online without impacting your credit score.

Apply with a cosigner

Having a cosigner with a good credit history can significantly improve your chances of getting approved for a personal loan for debt consolidation. It can also potentially help you get approved for a larger loan amount and better rates. A cosigner agrees to take responsibility for the loan if you default, which significantly reduces the risk to the lender.

Provide Collateral

Secured personal loans, which require you to provide collateral (such as a vehicle or property) to back up the loan, can be easier to get if you have bad or average credit. The downside is that you’re putting your asset on the line. If you run into trouble repaying the loan, the lender can seize the collateral to get their money back.

Build your credit score

If you’re not in a hurry to consolidate your debt, you may want to focus on improving your credit before you apply for a consolidation loan. Steps that can help include paying your bills on time, reducing credit card balances, and (as noted above) addressing any errors on your credit report.

You might also consider signing up for a service where your rent payments are reported to the credit bureaus. In turn, this could help build your credit (however, there may be a fee for this service).

Where to Get a Debt Consolidation Loan with Bad Credit

Trying to find consolidation loans for bad credit can feel overwhelming. Here are some places to start your search.

Local Banks and Credit Unions

Traditional banks and credit unions tend to be stringent in their lending criteria. However, if you already have a relationship with a local bank or credit union, they may be willing to work with you based on your overall financial profile, and not simply look at your credit score. You might want to talk to a loan officer about getting a personal loan to consolidate your debt and what rates and terms you could potentially qualify for.

Online Debt Consolidation Lenders

Online lenders tend to have more flexible qualification criteria for personal loans than banks, and can be a good place to look for debt consolidation loans for bad credit. These alternative lenders also typically offer a simpler application process and are faster to fund than traditional lenders. While rates tend to be higher, some online lenders will offer competitive rates on personal loans.

Payday Lenders

Payday lenders should be approached with caution due to their sky high interest rates and short repayment terms. This type of personal loan should be considered as a last resort if other options are not available.

How to Apply for a Debt Consolidation Loan

To apply for a personal loan to consolidate your debt, you typically need to provide the following information in your application:

•   Personal information

•   Employment information

•   Income information

•   Collateral or cosigner information (if applicable)

It’s helpful to gather these documents:

•   Government-issued ID (i.e., driver’s license, passport)

•   Proof of residence

•   Pay stubs

•   Bank statements

The lender will look over your application and likely perform a hard credit check, which can have a small, temporary negative impact on your credit score. They will typically take these qualification criteria into consideration:

•   Credit score

•   Income

•   Debt-to-income ratio

What Are the Benefits of a Debt Consolidation Loan?

The benefits of getting a debt consolidation loan include:

•   Simplified finances Combining multiple debts into one payment can make it easier to manage your finances and reduce the risk of missing payments.

•   Lower interest rate If you can secure a debt consolidation loan with a lower interest rate than your existing debts, you can save money on interest charges over time.

•   May help improve your credit Making regular, on-time payments towards your consolidated loan can positively impact your credit score over time.

Debt Consolidation Alternatives

If you’re not entirely sold on getting a debt consolidation loan or don’t think you’ll get approved because of your credit situation, here are some other options to consider.

•   Credit counseling You might want to work with a nonprofit credit counseling agency to create a personalized debt management plan and receive financial guidance. These agencies reach out to the creditors and lenders on your behalf and try to negotiate for a lower rate. Instead of paying your creditors directly, you would pay the counseling service each month.

•   Debt settlement It may be possible to negotiate with your creditors to settle your debts for less than what you owe. However, this option may have a negative impact on your credit.

•   Balance transfer credit card If you qualify for a credit card with lower interest rate or a promotional 0% APR period, you might want to transfer your high-interest credit card balances to this card.

•   Manage it yourself To tackle your debt on your own, you’ll want to make a list of all your existing debts, interest rates, and balances, then choose a DIY debt payoff plan, such as the snowball or avalanche method, to pay them down.

•   Home equity loan If you own a home and have significant equity in it, you may be able to take out a home equity loan to pay off your existing debts. This isn’t technically a debt consolidation loan, but you might be able to reduce the amount of interest you’re paying because your home secures the loan.

The Takeaway

Debt consolidation can be a valuable tool to simplify your finances and work towards becoming debt-free. While it may be challenging to get a debt consolidation loan with bad credit, it’s not impossible. By exploring different lenders, improving your credit profile, and considering collateral or a cosigner, you can increase your chances of approval.

If you’re interested in exploring your debt consolidation options, SoFi can help. With a low fixed interest rate on loan amounts from $5K to $100K, a SoFi personal loan for debt consolidation could substantially lower how much you pay each month. Checking your rate won’t affect your credit score, and it takes just one minute.

See if a personal loan from SoFi is right for you.

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Photo credit: iStock/Vladimir Vladimirov

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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For many people, personal loans can be the difference between affording something they need — like major home repairs — and having to forego the purchase. But personal loans aren’t without fees. Lenders always charge interest on loans, and in many cases, something called an origination fee.

But what is an origination fee on a personal loan, and how does it work? We’ll dive in below.

What Are Personal Loan Origination Fees?

Personal loan origination fees are an upfront, one-time charge by the lender that covers the costs of processing the loan, including the application, underwriting, and funding.

Typically, lenders charge origination fees as a percentage of the total loan amount. It’s usually 1% to 6%, but origination fees may go as high as 8% or even 10% of the loan amount. In some instances, a lender may charge a flat fee instead.

Not every personal loan has an origination fee, and lenders may differ in how they require consumers to pay it, if it’s included.

Recommended: Should I Get a $5,000 Personal Loan?

How Do Personal Loan Origination Fees Work?

If a lender charges an origination fee for a personal installment loan, it’s usually a percentage of the loan amount, somewhere between 1% on the low end and 10% on the high end. For example, if you take out a personal loan for $15,000 and there’s a 5% origination fee, you’ll pay $750 in fees.

Lenders typically subtract this fee from the total loan amount. In our example, that means they’d offer you a loan for $15,000, subtract $750 from the amount, and give you $14,250. But you’d still have to repay $15,000, plus interest. If you truly need the full $15,000, it’s a good idea to request more than $15K to ensure that you have enough funds after the origination fee is deducted.

In this case, the personal loan origination fee would be reflected in the APR calculation. That’s why experts often suggest comparing loans by their APRs. The APR, which represents the annual cost of a loan (not just the interest rate) will give you a true picture of what you’ll pay over the life of the loan.

Learn more about interest vs. APRs before comparing loans.

Note: While subtracting the fee from your loan amount is common, some lenders may require an out-of-pocket payment or add it to your loan total. Asking a lender how they charge the origination fee is a good idea when shopping for loans.

How Much Are Personal Loan Origination Fees Usually?

Personal loan origination fees typically vary between 1% and 10% of the total loan amount. Depending on how much you’re borrowing, this fee can get extraordinarily high.

For example, if you borrow $100,000 with an 8% origination fee, that’s an extra $8K you’re paying on top of the loan amount and interest.

Recommended: What to Know Before You Borrow Money Online

How Are Origination Fees Calculated?

Lenders may advertise a set origination fee or a percentage range. If it’s the latter, how exactly do they determine the percentage you’ll pay?

Unsurprisingly, lenders primarily consider your credit score and debt-to-income (DTI) ratio. The stronger your credit score and the lower your DTI ratio, the lower origination fees you might be offered. Lenders that don’t charge origination fees at all may have strict requirements that only borrowers with good or excellent credit can meet.

Lenders may also consider the length and size of the loan. Having a cosigner with good credit can help reduce your fees. In addition, lenders may ask your reason for borrowing or use other information from your application when setting your fees.

Recommended: Guide to Large Personal Loans

When Is an Origination Fee a Dealbreaker?

It’s wise to compare the loan APRs, which represent your total annual costs. A loan with no origination fee but a higher interest rate may wind up costing you more in the long run; comparing APRs can help you figure it out.

If you qualify for a handful of personal loans with varying fees, you may not necessarily want to go with the lowest fee. Compare APRs to discover the true cost of each loan.

At SoFi, we offer competitive personal loan interest rates and the option to pay an origination fee to secure a lower interest rate. An origination fee is not required, but it may cost you less in the long run, depending on your loan amount and term. We encourage everyone to do their due diligence and research multiple loans, but we’re proud of what we offer: same-day funding, flexible loan terms and amounts. You can even check your personal loan rate in as little as 60 seconds.

So when is a personal loan origination fee a dealbreaker? If the fee makes your total cost of borrowing higher than another offer, you should consider the better loan offer.

All lenders are required to disclose their fees as part of the Truth in Lending Act. If a lender advertises no origination fees, it’s a good idea to check the fine print to see if they’ve disguised the fee with a look-alike fee, like an “administrative” or “application” fee. If a lender does this and it gives you bad vibes, go with your gut — you should always feel good about the lender you choose.

Explore SoFi Personal Loan Rates

Looking for a personal loan with no required origination fee? Try a personal loan from SoFi. You can get same-day funding, and our loan terms and amounts are flexible (two to seven years and $5K to $100K in loans). Check your rate online in as little as 60 seconds!

Get a personal loan without the high fees from SoFi.

FAQ

How much are personal loan origination fees typically?

Personal loan origination fees typically range between 1% and 6% of the loan amount. But depending on the lender, your credit score, and other factors, you may pay as much as 8% or 10% in personal loan origination fees.

Do private loans always have origination fees?

Many private lenders charge origination fees, but that is not always the case. Before taking out any loan with a private lender, it’s a good idea to compare origination fees and APRs.

Can origination fees be negotiated?

You can often negotiate origination fees for certain types of loans, such as mortgages and personal loans. SoFi Personal Loans allow you to negotiate a fee in exchange for a lower interest rate.. However, with a high enough credit score, you may be able to qualify for a personal loan without an origination fee — or at least a lower one.

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Photo credit: iStock/lechatnoir

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Consolidating credit card debt is a common use of personal loans. And it makes sense, given that personal loans typically have lower interest rates than credit cards (which currently average 24.58%).

But what about saving money on an existing personal loan? Can you refinance a personal loan, ultimately saving money on interest or lowering your monthly payment? The answer is, yes. However, it may not make sense for every person or every type of personal loan.

Read on to learn why you might refinance a personal loan, how the process works, plus the pros and cons of a personal loan refinance.

Why Refinance a Personal Loan?

While there may be a variety of reasons to refinance a loan, it mainly comes down to two.

1.    To lower the overall interest rate and total interest paid.

2.    To lower the monthly payment.

These two might seem like the same thing, but they’re not.

When you refinance any type of loan, you are essentially replacing your old loan with a new loan that has a different rate and/or repayment term. If the new loan has a lower annual percentage rate (APR), you can save money on interest. If the APR is the same but the repayment term is longer, you can lower your monthly payments, making them easier to manage, but won’t save any money. (In fact, a longer repayment term generally means paying more in interest over the life of the loan.)

Another reason why you might consider refinancing a personal loan is to consolidate your debts (so you just have one payment) or to add or remove a cosigner.

Possible Advantages of Refinancing a Personal Loan

Here’s a look at some of the benefits of refinancing a personal loan.

Pay Less in Interest

If you are able to qualify for a personal loan with a lower APR, it may be possible to save a significant amount of money over time, provided you don’t extend your loan term. You can also save on interest by shortening your existing loan term, since this allows you to pay off the loan sooner.

Lower Your Monthly Payment

Refinancing to a lower APR and/or extending the length of the loan can lower your monthly payment. A lower monthly bill could help you get back on track, especially if you’ve been struggling to make your monthly payments.

Consolidate Multiple Debts

If you have a personal loan as well as other debts (such as credit card debt), you can use a new personal loan to consolidate those debts into one loan and a single monthly payment. If your new loan has a lower APR than the average of your combined debts, you may also be able to save money.

Possible Disadvantages of Refinancing a Personal Loan

Refinancing a personal loan might not be the right move for everybody. Here are some disadvantages to consider.

You May Pay More in Interest

If you refinance a personal loan using a loan that has a longer repayment term, you could end up paying much more in interest over the life of the loan.

You May Have to Pay an Origination Fee

Many personal loan lenders charge origination fees to cover the cost of processing and closing the loan. This is a one-time fee charged at the time the loan closes and, in some cases, can be as high as 10% of the loan. Since the fee is deducted before the loan is disbursed to you, it reduces the amount of money you actually get.

You Might Get Hit with a Prepayment Penalty

Some lenders charge a fee if you pay off the loan before the agreed-upon term, which is known as a prepayment penalty. If your original lender charges you a prepayment penalty, it could cut into your potential refinancing savings.

Refinancing a Personal Loan

If you are thinking about refinancing a personal loan, here are some steps you’ll want to take.

Check Your Credit Report and Score

To benefit from personal loan refinancing, you typically need to have better credit than you had when you got your original personal loan. With a stronger credit profile, you might qualify for a lower APR on the new personal loan.

You can access your credit report for free from each of the three major credit bureaus — Equifax, TransUnion, and Experian — through Annualcreditreport.com. It’s a good idea to scan your reports for any errors and, if you find one, report it to the appropriate bureau.

You can typically access your credit score for free through your credit card company (it may be listed on your monthly statement or found by logging in to your online account).

Shop Around for Loans

Every bank has different parameters for determining who they’ll offer loans to and at what rate, so it’s always worth it to shop around. This could mean looking at traditional banks, credit unions, and online-only lenders.

Many lenders will give you a free quote through a prequalification process. This typically takes only a few minutes and does not result in a hard inquiry, which means it won’t impact your credit score. Prequalifying for a personal loan refinance can help compare rates and terms from different lenders and find the best deal.

Applying for a Loan

Once you’ve decided on a lender who can help you refinance to a new loan, it’s time to formally apply. You’ll likely need to submit several documents, including pay stubs, recent tax returns, and a loan payoff statement from your original lender (which will show how much is still owed).

Paying Off the Old Loan

Once you have your new loan funds, you can pay off your original loan. You’ll want to contact your original lender to find out what the process is and follow their instructions. It’s also a good idea to ask your original lender for documentation showing the loan has been paid off.

Making Payments on the New Loan

Be sure to confirm your first payment due date and minimum payment amount with your new lender and make your first payment on time. You may want to enroll in autopay to ensure you never miss a payment. Some lenders even offer a discount on your rate if you sign up for autopay.

The Takeaway

Can you refinance a personal loan? Yes, and doing so may allow you to get a better rate and/or more affordable payments. However, you’ll want to factor in any fees (such as origination fee on the new loan and/or a prepayment penalty on the old loan) to make sure the refinance will save you money. Also keep in mind that extending the term of your loan can increase the cost of the loan over time.

If you’re interested in exploring your personal loan refinance options, SoFi could help. SoFi personal loans offer competitive, fixed rates and a variety of terms. Checking your rate won’t affect your credit score, and it takes just one minute.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

FAQ

Can you refinance a personal loan?

Yes, it is possible to refinance a personal loan. Refinancing involves taking out a new loan to pay off the existing personal loan, ideally with more favorable rates and terms. However, whether you can refinance your personal loan will depend on factors such as your creditworthiness, the terms of the original loan, and the policies of the new lender.

Does refinancing a loan hurt your credit?

Refinancing a loan can have both positive and negative impacts on your credit. Initially, the process of refinancing may result in a hard inquiry on your credit report, which can cause a temporary decrease in your credit score. However, if you use the refinanced loan to pay off the existing loan and make timely payments on that loan, it can positively impact your credit over time.

Can I refinance a personal loan with another bank?

Yes, it is possible to refinance a personal loan with another bank. Many banks, credit unions, and online lenders offer loan refinancing options. This allows you to transfer your personal loan balance to a new loan with a new lender. However, eligibility criteria, terms, and interest rates will vary by lender. It’s a good idea to shop around, compare offers, and consider factors such as interest rates, fees, and repayment terms before deciding to refinance with another bank.

What are the pros and cons of refinancing a personal loan?

The pros of refinancing a personal loan include the potential to:

•   Secure a lower interest rate

•   Reduce monthly payments

•   Consolidate multiple debts into a single loan

•   Switch to a more favorable lender

This can result in savings on interest costs and improved cash flow. However, there are also potential downsides to consider, which include:

•   Paying an origination fee for the new loan

•   Getting hit with a prepayment fee from your original lender

•   Extending your loan term can increase the total cost of the loan

It’s important to weigh the pros and cons before you pursue a personal loan refinance.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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A no-interest, or 0%, credit card means you won’t be charged any interest on your purchases for a certain period of time. In some cases, these cards also offer 0% interest on balance transfers for a set period of time.

But these cards also have some potential downsides. For one, the 0% annual percentage rate (APR) is only temporary. Once the promotional period ends, a potentially high APR will start accruing on any remaining balance you have on the card. In addition, you typically have to pay a fee to transfer your balance, which might negate any savings on interest.

Here are key things to know before signing up for a no-interest credit card.

Pros of No-Interest Credit Cards

Using a 0% APR credit card can create some breathing room within your budget. Here’s a look at some of the key perks, and how to make the most of them.

No Interest During the Promotional Period

Of course, one of the biggest advantages of a zero-interest card is that you’ll pay just that — zero interest — for a certain period of time, which may be anywhere from six to 18 months. If you use the card to make a large purchase and are able to pay it off in full before the end of the promotional period, it can be the equivalent of getting an interest-free loan.

Opportunity to Pay Down Debt Faster

In some cases, you also get the 0% APR on any balance you transfer over from another credit card. This can make a no-interest card a good option for consolidating and paying off high-interest credit card debt. If you have a plan in place to pay off the debt within the promotional period, a balance transfer could improve your financial situation.


💡 Quick Tip: A low-interest personal loan can consolidate your debts, lower your monthly payments, and help you get out of debt sooner.

Perks and Bonus Rewards

Some credit cards with 0% APR introductory rates on purchases and/or balance transfers also have additional rewards bonus programs. This might include a welcome offer and/or cash back or rewards points based on each dollar you spend. These extras can lead to even more savings.

For example, let’s say you want to purchase a new chair that costs $500. After some research, you find a credit card offering an introductory 0% APR for 15 months and a $200 rewards bonus after you spend $500 on purchases within the first three months of opening the account. You decide this will work for your financial situation, so you apply and are approved. After buying the chair with the new credit card, you pay the balance in full before the promotional period ends.

With this example, not only would you have paid nothing in interest, you would also have netted $200 in rewards cash.

Cons of No-Interest Credit Cards

Some might look at no-interest credit cards as too good to be true. That’s not necessarily the case, but there can be some drawbacks to them. Here are some potential pitfalls to be aware of.

Temporary Promotional Rate

Alas, that 0% APR doesn’t last forever. If you use the card for a large purchase but are unable to fully pay it off before the end of the promotional period, any balance will start accruing the card’s regular APR.

At that point, the card may not have any advantages over any other card. In fact, the card could have an APR that is higher than average. When comparing 0% rate cards, it’s important to look at what the rate will be when the promo period ends and exactly when it will kick in.

Also keep in mind that you could lose the 0% intro APR before the end of the promo period if you are late with a payment. Here again, it pays to read the fine print.

Fees for Balance Transfers

Some — but not all — no-interest credit cards also feature a 0% APR on balance transfers. However, you typically still have to pay a balance transfer fee, often around 3% to 5% of the transferred balance. If you’re transferring a large balance from another card, the balance transfer fee could actually be significant. You’ll want to do the math before making the switch to be sure it will work in your favor.

Interest May Apply Retroactively

Similar to a no-interest credit card, a deferred-interest credit offer is one that’s commonly used by individual retail stores. If you’ve been asked if you’d like to apply for a store’s credit card when you’re making a purchase, it might be one that comes with a deferred interest promotion.

Like no-interest credit cards, a deferred-interest card doesn’t charge interest as long as the balance is paid in full within a certain time period. The biggest difference between the two: If the balance is not paid in full before the promotional period ends, interest will be applied to the entire purchase — not just the remaining balance. And APRs on deferred-interest cards can be even higher than APRs charged by regular credit cards.

Can Credit Scores Be Affected by No-Interest Credit Cards?

Applying for a new credit card results in a hard inquiry on your credit report, which can have a minor, temporary negative impact on your credit scores. This is generally nothing to worry about.

However, repeatedly opening new credit cards and transferring balances to them can cause a lasting negative impact on your credit. That’s because too many hard inquiries too close together can lead lenders to believe you’re applying for more credit than you can pay back.

In some cases, a balance transfer can positively impact your credit by helping you pay off your debts faster than you would otherwise be able to. This lowers your credit utilization ratio, or how much of your available credit you are currently using, which is a key component of your credit score.


💡 Quick Tip: Swap high-interest debt for a lower-interest loan, and save money on your monthly payments. Find out why SoFi credit card consolidation loans are so popular.

The Takeaway

A 0% intro APR card can help you avoid paying interest on your purchases for a set period of time. It can also allow you to consolidate and pay down credit card debt faster.

Keep in mind, however, that cards with no interest often come with a balance transfer fee. Also be aware that your interest rate will likely be much higher when the intro APR offer ends if you haven’t paid off your balance by then.

No-interest credit cards aren’t the only option for paying off debt. You may also be able to pay off high-interest credit cards with a personal loan. A personal loan calculator can give you an idea of what your potential savings might be.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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