Can You Refinance A Personal Loan With The Same Bank?

When people consider refinancing a personal loan, their first thought is often to switch to a new bank to secure a better rate. However, a common and often overlooked option is to refinance with the same bank that issued the original loan.

Refinancing simply means taking out a new loan to pay off an existing one, and your current financial institution may be a good option for this process.

A question frequently asked by borrowers is whether it's possible to refinance a personal loan with the very same bank that originally issued it.

Well, refinancing with your current bank can be a very convenient option since they already know you and have your financial history. Because you are a current customer, they might be willing to offer you a better deal to keep your business.

In this article, we give you everything you need to know about personal loans, including whether you can refinance a personal loan with the same bank and the pros and cons of refinancing a personal loan.

What is Personal Loan?

A personal loan is a type of loan given to individuals for a personal need, such as paying off a debt, paying for home renovations, or covering unexpected expenses.

The lender (e.g., bank) provides you with a fixed amount of money as a lump sum. You pay back the borrowed amount over a predetermined period, known as the loan term. These repayments are typically made in fixed monthly installments that include both principal and interest.

• Interest Rate: Personal loans usually have a fixed interest rate, which means your monthly payment will remain the same throughout the life of the loan. This makes it easier to budget and plan your finances.
• Unsecured vs. Secured: Most personal loans are "unsecured," meaning they don't require collateral (such as a house or car). The lender approves the loan based on your creditworthiness, including your credit score and income. Some personal loans, however, are "secured" and may require an asset as collateral.

One of the key features of a personal loan is that the funds can be used for a wide variety of purposes, unlike a mortgage or auto loan, which is tied to a specific purchase.

Can You Refinance A Personal Loan With The Same Bank?

Yes, it is generally possible to refinance a personal loan with the same bank or financial institution that originally issued the loan. However, it's not always guaranteed, nor is it always the best option.

While many people assume that refinancing a loan means moving to a different lender, your current bank or financial institution may offer you a new loan to pay off your existing one. This process is essentially the same as refinancing with a new bank, but it comes with some unique advantages and considerations (see below).

Here is a detailed guide on refinancing a personal loan with the same bank:

Why Would You Want to Refinance a Personal Loan?

People typically refinance personal loans for several reasons:

1. Lower Interest Rate: If your credit score has improved significantly since you took out the original loan, or if market interest rates have dropped, you might qualify for a lower APR. This can save you a substantial amount of money over the life of the loan.

2. Lower Monthly Payments: A lower interest rate or a longer repayment term can reduce your monthly payment, freeing up cash flow in your budget.

3. Shorter Repayment Term: If you want to pay off the loan faster and can afford higher monthly payments, refinancing to a shorter term can save you a lot in interest, even if the interest rate stays the same or slightly increases.

4. Change Loan Type/Terms: You might want to switch from a variable-rate to a fixed-rate loan, or vice versa, depending on your risk tolerance and market outlook.

5. Access More Funds (Cash-Out Refinance): Some banks might allow you to borrow more than your current outstanding balance, essentially taking out a larger new loan and using a portion to pay off the old one, with the remainder as cash.

Why Would Your Current Bank Allow It?

Your current bank might be willing to refinance your loan because:

• They want to retain your business; that is, if you are a good customer, they want to keep you from going to a competitor.
• If your credit profile has improved, you are a more attractive borrower.
• They can profit from a new loan: Even with a lower rate, they still earn interest.

When you apply to refinance with your current bank, they will essentially treat it like a new loan application. They will evaluate:

1. Your Credit Score: Has it improved? A higher score indicates lower risk.
2. Your Debt-to-Income (DTI) Ratio: How much of your monthly income goes towards debt payments? A lower DTI is better.
3. Your Payment History: Have you made all payments on time for the original loan? This is crucial.
4. Your Income and Employment Stability: Do you have a stable job and sufficient income to comfortably afford the new payments?
5. Current Market Interest Rates: If rates have risen since you took out the original loan, a lower rate might not be possible.

These are essential points in guaranteeing you the loan.

A Step-by-Step Guide to Refinancing with Your Current Bank

Step 1: Evaluate Your Current Loan:

Before you do anything, get all the details of your current loan: the remaining balance, the interest rate, the remaining term, and any prepayment penalties. Knowing these numbers is crucial for comparison.

Step 2: Check Your Credit Score

A higher credit score will give you access to better rates. Check your score and credit report to ensure there are no errors. If your score has improved since you took out the original loan, you are in a great position to negotiate.

Step 3: Research the Market:

This is the most critical step. Get refinancing quotes from at least three different lenders: a competitor bank, a credit union, and an online lender. This will give you a benchmark to compare against your current bank's offer. Do not skip this step, as it provides the leverage you need to negotiate.

Step 4: Contact Your Bank:

Call your bank or visit a branch to inquire about refinancing your personal loan. Be upfront about your goals "you are looking for a lower rate or a different term." Mention that you are an existing customer with a strong payment history and that you are also exploring options with other lenders.

Many of the largest banks (like Citibank, Wells Fargo, Regions bank, etc.) and Credit Unions offer personal loans that can be used for refinancing. If you already have a relationship with one of these, you might find the process convenient.

Step 5: Compare the Offers:

Carefully compare your current bank's new offer with the quotes you received from other lenders. Look at three key numbers:

• The new interest rate.
• The total cost of the loan (including any fees).
• The total amount of interest you will pay over the life of the loan.

Step 6: Make Your Decision:

Choose the offer that provides you with the greatest savings and best fits your financial goals. While your bank may not offer the absolute lowest rate, the convenience and potential for a lower fee might make their offer the best overall value.

Note, while refinancing a personal loan with the same bank is a convenient option, always do your due diligence and compare offers from multiple lenders to ensure you are getting the best possible deal for your financial situation.

Pros and Cons Of Refinancing A Personal Loan (With The Same Bank):

Refinancing a personal loan with the same bank offers a unique set of pros and cons that are slightly different from refinancing with a new lender.

Pros of Refinancing with the Same Bank:

1. Convenience and Familiarity:

This is the most significant advantage. You already have a relationship with the bank and are familiar with their online portal, customer service, and loan process. You won't have to go through the trouble of setting up new accounts or getting to know a new lender's system, which can save a lot of time and hassle.

2. Streamlined and Faster Process:

Since the bank already has your financial history, credit information, and personal details on file, the application and approval process can be much quicker. You will likely need to provide less documentation and can get a decision faster than if you were applying to a new bank.

3. Leverage as a Current Customer:

Your history of on-time payments and your existing relationship can be a powerful negotiating tool. The bank wants to keep your business and may be more willing to offer you a better interest rate or waive certain fees (like origination fees) to prevent you from taking your business elsewhere. This can lead to a more competitive offer than what they might extend to a new customer.

4. Potential for "Soft" Credit Inquiry:

In some cases, your existing bank may be able to pre-approve you for a new loan with a "soft" credit inquiry. A soft inquiry doesn't affect your credit score, unlike a "hard" inquiry that is typically done when you apply for a loan with a new lender. This allows you to explore your options without any immediate impact on your credit.

Cons of Refinancing with the Same Bank

1. Potentially Uncompetitive Offers:

The biggest risk is that your bank's offer may not be the best one available. While they might offer you a discount to keep you as a customer, it may not be as low as the rates offered by online-only lenders or credit unions that have lower overhead costs. Sticking with your current bank out of convenience could mean missing out on significant savings.

2. Limited Negotiation:

Some banks have rigid policies and may not be willing to negotiate on their rates or terms. They might simply offer you a standard refinancing product with no flexibility. If their offer isn't much better than your current loan, refinancing with them might not be worth it.

3. No "Fresh Start" Benefit:

If you are refinancing due to a negative past experience with your bank's service or a lack of flexibility, staying with them will not solve those issues. A new lender offers a clean slate and a chance to find a financial institution that better aligns with your needs.

4. Possible Fees:

Even with your existing bank, the new loan may come with fees. You might be charged an origination fee for the new loan or a prepayment penalty for paying off the old one early. Always ask about all associated costs to ensure the refinance is truly a good deal.

NOTE: Refinancing a personal loan is a smart move if it helps you secure a lower interest rate or simplifies your debt with a manageable monthly payment. However, it's crucial to weigh these benefits against the potential costs and risks. Always calculate the total cost of the new loan and compare it to the total cost of your current loan to ensure the decision makes financial sense.

Conclusion:

Yes, you can refinance a personal loan with the same bank. It's often a convenient and efficient way to secure a better rate and improve your financial situation. However, the key to success is to not rely solely on your current relationship. By doing your research, comparing offers from multiple lenders, and being ready to negotiate, you can ensure that you make a decision that truly benefits your financial well-being.