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How To Refinance Your Loans

Last updated 03/15/2024 by

Andrew Latham

Edited by

Fact checked by

Worried about debt? You’re not alone. As of August 2023, Americans have $17.06 Trillion in household debt (source). That’s the bad news.
The good news is that there’s a way you may be able to save money and pay off your debt more easily. How? By refinancing your loans.
While refinancing has many benefits, it also has its risks. So how do you know if refinancing is right for you?
Here’s everything you need to know to help you decide.

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What is refinancing?

Refinancing is the process of taking out a new loan to pay off your existing loans. The goal is to lock in a lower interest rate and better loan terms.refinance loans
Doing so can decrease your monthly payment and the amount of interest you’ll pay over the loan term.
For example, let’s say you have a 30-year, fixed-rate mortgage for $250,000 and refinancing your loan results in a 0.5% interest-rate reduction. Your monthly payments would decrease noticeably, and you’d save a significant amount in interest. How much, exactly? Let’s see.
For convenience, we’ll assume that you refinance your loan before making any payments, and we’ll disregard all fees and other expenses normally associated with a mortgage loan or refinance. We’ve chosen annual percentage rates (APRs) of 8.0% and 7.5% for our comparison, which may or may not be realistic rates when you read this article.
30-year fixed at 8.0%30-year fixed at 7.5%Savings if refinance
Monthly payment$1,834.41$1,748.04$86.37
Total payments$660,388.12$629,293.06$31,095.06
That’s not bad! And if you refinanced to a 15- or 20-year mortgage, you’d save even more money. But, of course, your monthly payments would increase.

Will refinancing always save you money?

Although refinancing is a great tool to help you save money, it could sometimes end up costing you more. If you extend your loan term, you’ll pay more in interest even if your rate is lower — unless, of course, it is much lower, which it probably won’t be.
For example, let’s say you have a $30,000 auto loan payable over 48 months. If you refinance and extend your loan term to 60 months, you’ll end up paying extra in interest. To see how much extra in concrete terms, let’s assume, as in the mortgage example, that you refinance to the new term before making any payments. Let’s also disregard any additional costs you might find associated with real-world auto loans. For this example, we’ve assumed a 9% APR for both terms.
4-year (48 months) term5-year (60 months) termSavings or added cost
Monthly payment$746.55$622.75$123.80 savings
Total payments$35,834.46$37,365.04$1,530.58 added cost
Total interest$5,834.46$7,365.04$1,530.58 added cost
In exchange for paying around $124 less per month over an extra year, this refinance costs you roughly $1,500 in extra interest, making your car that much more expensive. If your monthly salary can only cover the lower payment, you may choose to go ahead with this refinance. But if you can afford the higher monthly payment, you’ll probably decide to stick with the four-year term.

But what if you could get a rate cut on the longer term?

Good question. If you could get the five-year loan for 8%, your monthly payment would be $608.29 and your total loan interest $6,497.51. That’s still $663.05 in added cost over the four-year loan at 9%. Now, if you could get a rate cut to 7% for the five-year term, your monthly payment would fall to $594.04 and your total interest to $5,642.16. In that scenario, you’d save $192.30 compared to the four-year loan at 9%. But how likely is it that you’ll find a lender willing to charge you 2% less for a 60-month loan than for a 48-month loan? Not very.

What’s the process to refinance a loan?

Refinancing a loan is similar to the process you went through to get your original loan.
When you refinance loans, you should:
  • Find out where you stand. Start by checking your credit score and reviewing your finances.
  • Shop around. Shop around and get prequalified to see what kind of offers you can get without hurting your credit score.
  • Compare your options. Compare lenders and loan terms to find the best deal.
  • Apply. Complete a loan application.

Consumer debt refinancing

Personal loans and credit card debt are two of the most common sources of debt in the United States. According to the New York Fed’s most recent SCE Credit Access Survey (June 2023), 24.8% of households applied for credit cards over the last 12 months, and 12.5% applied to have existing credit card limits raised. Compare those percentages with households that applied for an auto loan (11.9%), a mortgage (6.5%), or a mortgage refinance (5.3%).
According to the Federal Reserve’s latest report on the Economic Well-Being of U.S. Households (2022), credit cards are the fourth largest source of debt (6.04% of total debt) after mortgages (70.41%), auto loans (9.27%), and student loans (9.20%)(source). According to TransUnion (Q1 2023), the average consumer has $5,733 in credit card debt (source
Debt refinancing involves moving loans or credit card balances from accounts with high interest rates to one with a lower rate and better terms. One ways to refinance your consumer debt is to get a personal loan for debt consolidation.

Debt consolidation loan

When done right, debt consolidation can help you save money in interest and repay your debt faster. For example, let’s say you have two credit card accounts with a balance of $5,000 (23.49% APR) and $7,500 (21.49% APR) and plan to pay them off over the next 48 months (four years). If you instead pay both cards off now with a 9.99% APR debt consolidation loan, you could save nearly $4,000 in interest over the same 48 months — with a lower monthly payment.
Here’s the detailed breakdown for paying off either both cards or the consolidated loan over four years:
Balance (%APR)Monthly paymentTotal interestNotes
$5,000 (23.49% APR)$161.60$2,756.931 of 2 cards
$7,500 (21.49% APR)$234.22$3,742.752 of 2 cards
Total for both cards$395.82$6,499.68Without consolidation
$12,500 (9.99% APR)$316.97$2,714.67Consolidation loan
Savings with consolidation$78.85$3,785.01Nice!

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Balance transfer credit card

Another option is to take advantage of a balance transfer credit card. When you get approved for such a card, the issuer allows you to transfer balances from other cards. Why would you do this? Typically, card issuers offer 0% interest on transferred balances for nine to 21 months. If you think you can pay off your debt during that time, you should consider applying for a balance transfer credit card. Even if you think you won’t be able to pay off the full balance in time, your interest rate after the promotional 0% period may not be higher than the APR you’re already paying on these balances.
So, which is better, a debt consolidation loan or a balance transfer credit card? If you can pay off your debt within the 0% promotional period on a balance transfer card, well, 0% is hard to beat. Otherwise, your savings from now to when you pay off your debt could be better with a personal loan. To learn all you need to know to make the most prudent decision, please read our article Balance Transfer Credit Cards vs Personal Loans: Which is Right for You.

Auto loan refinancing

Auto loan refinancing can save you quite a bit of money on your loan.
For example, let’s say you have a 60-month loan for $30,000. And let’s say you refinance that loan to an APR just 1% lower. How much would that save you? If your original interest rate was 8% and your new rate 7%, your total interest would drop from $6,497.51 to $5,642.16, an $855.35 savings. Your monthly payment, by the way, would also drop, from $608.29 to $594.04. (As with other examples, we’ve disregarded all fees and expenses other than interest, and we’ve assumed you refinance the full loan amount without first making payments at the original rate.)
Factors that determine your interest rate include:
  • Your credit score.
  • Your vehicle type and age.
  • The lender you choose.
  • The term length on your loan.

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Auto loans by the numbers

Americans now have a total of $1.58 trillion of outstanding auto loan debt (source).
Key auto loan statistics, according to Experian’s latest State of the Automotive Finance Market report (Q2 2023), are as follows:
  • New car loan average: $40,657
  • Average monthly payment new car: $729
  • Used car loan average: $26,863
  • Average monthly payment used car: $528
Meanwhile, the total outstanding auto loan debt in the United States, according to the Federal Reserve Bank of New York, looks like this:

When should you refinance an auto loan?

  • Your credit has improved. With a higher credit score, you may qualify for a lower interest rate than when you first got the car loan.
  • Interest rates have dropped. If rates have dropped due to market changes, refinancing your auto loan can help you save money.
  • You’re struggling to make payments. You can lower your monthly payment by extending the loan term. This will increase the overall cost, though.
  • You got a bad deal on your original loan. If you got a bad deal from the start, refinancing can help you get the rate and terms you deserve.

What to watch out for

If you refinance your loan and extend the loan term, you could end up upside down on your loan. That is, you could owe more than what your car is worth.
For instance, say your car is worth $9,000 and you refinance with an $8,000 loan over 60 months at 8%. Two years after refinancing your loan, you’ll still owe $5,176.45 on your loan.
If your car is only worth $4,000 at that point, you’d be upside down on your loan. So, if you tried to sell your car, you’d have to pay the lender $1,176.45 more than what you sold it for.
Here is a list of the benefits and the drawbacks to consider
  • Pay
  • Opportunity to lower your monthly payment amount.
  • Can save money by getting a lower interest rate.
  • A lower payment could help you pay off the loan faster.
  • If you opt for a longer loan term, you may end up paying more in interest.
  • Refinancing for a longer loan term could put you at risk for being upside down on your loan.

How do you choose a lender?

When comparing lenders, pay attention to the interest rates and loan terms they offer. Use Supermoney’s auto loan engine to get prequalified offers from various lenders.

Student loan refinancing

Just as with other types of refinancing, you can lock in a lower interest rate and save money when you refinance your student loans.
For example, if you have $35,000 in loans with a 10-year term and you decrease your interest rate by 2%, you’ll save over $4,000 in interest payments. But beware: extending your loan term during refinancing can cause you to pay more in interest, even if your rate is lower. If you refinance that same loan but extend the term to 20 years, you’ll end up paying over $9,000 more in interest than you would have had you not refinanced.
Here’s what the numbers look like if we adopt the same assumption we’ve used in other examples, such as no payments before refinancing. The figures assume an original interest rate of 8% and a refinance APR of 6%. Green text means you’re saving money or paying less; red text means the opposite.
$35K, 10 year, 8%$35K, 10 year, 6%Change with 10 year refinance$35K, 20 year, 6%Change with 20 year refinance
Monthly payment$424.65$388.57↓$36.08$250.75↓$173.87
Total interest$15,957.59$11,628.61↓$4,328.98$25,180.21↑$9,222.62
Total payments$50,957.59$46,628.61↓$4,328.98$60,180.21↑$9,222.62

Student loans by the numbers

Combining data from the Federal Reserve Bank of New York, Education Data Initiative, and U.S. Census Bureau gives us these key student loan statistics:
  • Americans have $1.57 trillion in student loan debt.
  • Over 13% of consumers have outstanding student loan debt.
  • Average student loan debt per borrower is between $37,718 (federal loans only) and $40,499 (including private loans).
As for total student loan debt outstanding, here are the figures since 2003:

When does it make sense to refinance your student loans?

Student loan refinancing can be a great option for borrowers who want to save money and lower their monthly payments, but that’s not the only reason to refinance.

Other reasons to refinance

  • You have multiple loans. Refinancing allows you to consolidate all of your student loans into one, with a (hopefully) lower interest rate.
  • You want to remove a cosigner. While in school, many student borrowers aren’t able to qualify for a loan on their own. To get a loan, you may need a parent or a friend to be a cosigner. This cosigner will be liable for the loan if you stop making payments. Once you refinance to a loan without a cosigner, your old cosigner will no longer be liable.
  • You want to add a cosigner. On the flip side, you may want to add a cosigner to help you land a better deal. Most student loan refinancing lenders require solid credit to be approved. If you apply with a cosigner who has a great credit history, you’ll have an easier time qualifying for the best interest rates. But make sure you choose a lender that offers a cosigner release.
  • You want to lower your monthly payments. If you’re struggling with payments, you can lower the monthly amount by refinancing with a longer term. But remember, a longer loan term means you’ll make more payments and pay more in interest over the life of the loan.

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What to watch out for

While student loan refinancing is a great option to help save money, it’s not right for everyone.
So, if you’re considering refinancing federal student loans, find out what benefits or protections you might lose by doing so. Federal student loans offer benefits such as loan forgiveness, income-driven repayment plans, and loan deferment options if you lose your job or are unable to work.
Here is a list of the benefits and the drawbacks to consider when refinancing student loans.
  • Lower monthly payments.
  • Lower the total amount of interest paid.
  • Consolidate multiple loans into one.
  • Add or remove cosigners.
  • You could lose out on federal protections or benefits.

How do you choose a lender?

If you’re ready to refinance your student loans, review lenders and compare terms side-by-side to find your best deal.

Home mortgage refinancing

Home mortgages represent the largest component of household debt in America — $12.014 trillion, to be exact, or 70.41% (source).
There are two types of mortgage refinance loans: rate-and-term and cash-out.


With a rate-and-term loan, you’ll get a new loan with a lower interest rate and better term. But make sure you don’t inadvertently extend your loan term. For example, if you originally had a 30-year loan and, after 10 years, you decide to refinance it to another 30-year loan, you’ll end up paying more in interest.
Why? Because you are now making 40 years worth of interest payments. Just so there’s no doubt, let’s run some figures.
Disregarding all fees and costs except an 8% interest rate, after 10 years making your monthly payment on a $200,000 mortgage loan, you’ll have an outstanding balance of $175,449.40. At this point you will have paid $151,552.90 in interest and $24,550.60 in principal by paying $1,467.53 every month. Just then, you get a mailer from your lender publicizing a special rate for mortgage refinancing: 6%. “That sounds pretty good,” you think.
So, should you go with a 20-year or 30-year term? Let’s see. We’ll include the figures for sticking with the existing 8% loan just to be thorough.
Stick with existing loanRefinance balance, 20 yearsRefinance balance, 30 yearsLonger vs. shorter refi term
Monthly payment$1,467.53$1,256.97 $1,051.91↓$205.06
Total interest$328,310.49$126,224.36$203,237.41↑$77,013.05
Total payments$528,310.49$301,673.76$378,686.81↑$77,013.05
As you can see, you definitely should take advantage of the 6% refinance offer. But you definitely shouldn’t go for the longer term when you refinance. The numbers have spoken.

Cash-out refinance

A cash-out refinance allows you to borrow against the equity in your home. You’ll refinance your mortgage for more than what you owe on your house and receive the difference in cash.
You can use the additional cash any way you’d like. For example, you can use it to fund a home improvement project or pay off other debts.

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Watch out for fees

Unlike auto and student loan refinancing, there are several fees associated with a mortgage refinance, such as:
  • Application fee
  • Loan origination fee
  • Points
  • Appraisal fee
  • Inspection fee
  • Closing fee
  • Title search fee
  • Survey fee
  • Prepayment fee
If these fees are higher than what you would save in interest, it might not make sense to refinance.
Here is a list of the benefits and the drawbacks to consider when refinancing your mortgage.
  • Lower interest rate.
  • Lower your monthly payments.
  • Convert an adjustable-rate mortgage to a fixed-rate
  • Remove someone from the loan.
  • Borrow against your home’s equity.
  • Extending your loan term could cost you more money.
  • Could be denied if your credit or income has dropped.
  • High fees and costs.

How do you choose a lender?

Your original lender might not be your best option for refinancing. Be sure to shop around using SuperMoney’s mortgage refinance review page.

Business loan refinancing

Do you own a small business, or a large one for that matter? If you do, chances are good that you’ve borrowed money either to start your business, to keep it operating, or to expand it. Just how likely, you wonder? Before we dig into the specifics of if and how you should refinance your business debt, let’s look at the numbers.

Business loans by the numbers

These are some key business loan statistics from Federal Reserve sources (source 1, source 2):
  • Business loans (for all business sizes) in the U.S. totaled over $2.75 trillion as of August 1st 2023.
  • 74% of small businesses had outstanding debt in 2021.
  • Only 31% of small businesses borrowers received all the financing they applied for in 2021.
  • An additional 14% received over half what they asked for in 2021.
The $2.75 trillion in business loans signifies a slight pullback from earlier this year, and is notably lower than the COVID-year spike in 2020. The following chart shows you the totals over the last 20 years.

What does business loan refinancing involve?

Business loan refinancing bears some resemblance to mortgage refinancing. Your new business loan pays off and replaces the old one. Why might you want to do this?

Key reasons to refinance your business loan

  • A lower interest rate
  • Lower your monthly payment
  • More time to pay (extended loan term)
  • Less frequent payments
  • More favorable terms
To see if business loans you currently qualify for offer one or more of these benefits, you’ll need to do some shopping. To that end, some guidelines follow. Note that these guidelines selectively draw upon, and condense, our comprehensive guide How to shop for business loans. If a question you need answered isn’t covered here, please take a look at the fuller guide.

First things first: do you and your business qualify?

Like all loans, business loans have eligibility requirements. If you don’t yet meet them, you may need to do some prep before proceeding. Since you’re seeking to refinance an existing business loan, you should already have had to meet these requirements before. But if you’ve been lax in your record-keeping, changed the structure or activities of your business, or managed to get your existing loan without fulfilling these requirements, you may need this review.

Key business loan eligibility requirements

To get approved for a business loan, you’ll need to satisfy all or most of the following requirements:
  • Legal business existence (DBA, Inc., or LLC, for example).
  • Business banking account(s).
  • Business plan.
  • Business tax forms and financial records.
  • Explanation of loan’s purpose.
  • Personal credit report and financial records.
What’s this “business plan” requirement all about, you wonder? In a perfect world, you’d have created a formal business plan before going into business, or at least before getting your existing loan. In our real world, many business owners don’t do this until they find out they need one. Well, now you need one — probably. Commercial and government business lenders, as well as many alternative business lenders, require one. If you managed to get your first loan without a business plan, or if the business plan you used before is no longer accurate, you have some work to do.

How to create a business plan

To create a business plan that business lenders will accept, you’ll need to include all the following elements, at a minimum:
  1. Company description (including type of business, such as partnership or corporation)
  2. Products or services offered.
  3. Personal financial statements and biographies for the main officer(s).
  4. Company financial statement.
  5. Market and industry analysis.
  6. Marketing plan and sales strategy.
To learn more about business plans, please visit SuperMoney’s Business Plans topic page.
Assuming you and and your business now meet the basic requirements for most business financing, you are ready to choose the type of refinancing you want to pursue. To keep things simple, we’ll assume that your existing loan is the sort of term loan most people have in mind when they say “business loan.” What are your options for refinancing that loan?
Note: interest and payment calculations for business loans work just like the calculations for the multiple types of loans we’ve already discussed. This being the case, we’ll spare you further calculations as we go over business loans.

Business loans (term loans)

As a business owner taking out a term loan, you receive a lump sum upfront. You then have to pay this back, with added interest, over the loan term, following a fixed repayment schedule. Term loan repayment schedules are typically fully amortized, meaning you’ll completely pay off the principal by the end of the term. The term may run from under a year to 20-plus years. If your credit is good, or if your business has established good credit of its own, you may qualify for an unsecured loan. Otherwise, you may need some collateral.
How long your business has been open, along with how profitable it is, will also affect your loan eligibility, your need for collateral, and the quality of deals you’re offered. Even if you can qualify for an unsecured loan, you may find that a secured loan offers better terms. This is because a loan with collateral poses less risk to the lender. A term loan secured by the business equipment you’re using it to purchase may be called an “equipment loan.”

Don’t ignore fees and other added cost

When you refinance your existing business loan with a new one, you may incur some costs. Be sure to take this into account when figuring out if refinancing will save you money. Possibilities include prepayment penalties on the loan you’re refinancing (replacing), origination fees on your new loan (possibly 1–6% of the loan amount), and documentation fees for paperwork processing. Focusing on just the old and new APRs could have you mistake a bad deal for a good one.

SuperMoney may receive compensation from some or all of the companies featured, and the order of results are influenced by advertising bids, with exception for mortgage and home lending related products. Learn more

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Small business loans: SBA loans

According to the Small Business Administration (SBA) Office of Advocacy, as of March 2023, small businesses employed 46.4% of the people working in the private sector, paying out 39.4% of the private-sector payroll (source). While this does suggest that private-sector workers earn more if they work for large businesses, it also shows that small business are a big part of what drives the U.S. economy. If your business is in this category, you will definitely want to look into SBA loans. Like other government-guaranteed loans, these can be a great deal for those who qualify.
The SBA itself does not make the loans, only guarantees that a portion of each loan will be repaid. This reduces lender risk, making for better loan terms. As well, the SBA sets limits on the interest rates lenders can charge, which can make SBA loans an especially good value for borrowers who would otherwise have to pay high rates due to poor or no credit. SBA lenders include community development organizations, microlenders, and traditional lenders. To get one of these loans, your business must qualify as “small” according to a complex set of guidelines that base the size determination on a company’s annual receipts or number of employees, with the standards differing by industry (source).

SBA loans

These are the types of loans the SBA program offers to qualifying small businesses:
  • General small business 7(a) loans: Loans up to $5 million for working capital, equipment purchases, and expansion. Lenders include select banks, credit unions, and specialized lenders, such as OnDeck.
  • Certified Development Company (CDC)/504 loans: Loans up to $5 million for land, machinery, and facilities. Accessible through a CDC in your local area.
  • Microloans: Loans of up to $50,000 for acquiring materials, equipment, supplies, or working capital. Loan partners include nonprofits, intermediary lenders, and private-sector lenders.
  • SBA disaster loans: Loans of up to $2 million to help businesses rebound after a declared emergency or natural disaster. The SBA provides these loans in cooperation with FEMA Disaster Assistance.
Among these loan types, the 7(a) and microloans seem the most likely to work for refinancing your existing loan. Because each includes “working capital,” they basically allow you to make whatever business-related use of them you need to. That includes paying off an existing loan. If your existing loan paid for land, machinery, or a facility that is acting as collateral, you might wish to contact your local CDC to see if there’s a way to use a 504 loan to replace your existing loan.

Other options: stopgap measures

The following alternatives could help you meet your existing loan obligation during difficult times:

Lines of credit

A business line of credit can be secured or unsecured and works somewhat like a credit card. Unlike credit cards, lines of credit typically have a set draw period, such as 5–10 years. You’ll receive a credit line with a specified limit to withdraw from as needed. You don’t have to take the full amount all at once and will only pay interest on the amount you withdraw. Though probably not the best way to fully pay off and replace your existing loan, using a line of credit to cover business loan payments during a rough patch could be a viable solution to some short-term difficulties. Learn about the best business lines of credit here.

Invoice financing

This allows you to borrow against your unpaid invoices. You can typically borrow about 85% of the invoices’ value. If you have a lot of invoices that are due to be paid weeks to months in the future, this type of loan may give you the liquidity you need while you wait. Like a line of credit, this may be helpful for rough patches, but it probably won’t provide the lump sum of cash you’d need to retire an existing loan.

Invoice factoring

Rather than borrowing against outstanding invoices, here you sell them outright. A factoring company pays you a portion of the value, typically about 85%, then “takes over” the invoices and collects on them from your customers. This is another “helpful for rough patches” option. One risk is that, should your factoring company lack your customer service skills, it could cause you to lose customers.

Business credit cards

Business credit cards offer another way to borrow. They provide you with a revolving line of credit from which you can withdraw funds as needed. These could prove useful in the same way lines of credit can. Given their likely higher interest rates, you probably won’t want to use them to pay off an existing loan. But using them to cover certain expenses could free up funds to keep you current on your loan payments. Learn about the best business credit cards here.

Other options: potential solutions

Unlike the preceding forms of rough-patch assistance, the following financing methods could provide sufficient funding to pay off your existing business loan, possibly making them suitable for ad hoc refinancing:

Merchant cash advance

Like term loans, merchant cash advances (MCAs) provide you with a lump sum upfront. This could make them a viable way to pay off and replace (“refinance”) an existing business loan. Rather than requiring fixed payments on a schedule, an MCA draws payments from your payment processor as a percentage of incoming revenue. Because MCAs often have higher fees than regular loans, they often won’t be a good option for refinancing a more standard business loan. That depends on market conditions, however, and an MCA might allow you to get out from under a term loan when its fixed payment schedule and your irregular business income have stopped getting along.

Personal loans

Borrowing based on your good personal credit is another financing option. And this one might provide sufficient funds to pay off and replace an existing loan. Online personal loan lenders are plentiful today, making it much easier to get a loan. You can apply in a matter of minutes and, if you get approved, have the the money show up in your account as soon as the next business day. The borrowing costs will likely be higher than for a secured loan or an SBA loan, but good to excellent credit could get you some appealing offers. Learn about the best personal loans here.

A loan against your home

If getting your business loan paid off and replaced is very important to you, and if you have enough equity in your home, a cash-out refinance on your home could be an option for you. See the earlier discussion of this under home mortgage refinancing.
If you have equity in your home, or have paid it off entirely, a home equity loan or line of credit could also merit consideration.

Final thought on whether to refinance loans

Refinancing debt is a great option for people who want to lower their payments, save money on interest, or both. But there are some drawbacks, so make sure it’s right for your situation before you apply for a new loan.

SuperMoney may receive compensation from some or all of the companies featured, and the order of results are influenced by advertising bids, with exception for mortgage and home lending related products. Learn more

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Andrew Latham

Andrew is the Content Director for SuperMoney, a Certified Financial Planner®, and a Certified Personal Finance Counselor. He loves to geek out on financial data and translate it into actionable insights everyone can understand. His work is often cited by major publications and institutions, such as Forbes, U.S. News, Fox Business, SFGate, Realtor, Deloitte, and Business Insider.

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