Refinancing a personal loan can be a smart move to reduce your monthly payments, secure a lower interest rate, or adjust your repayment terms. But many borrowers hesitate to refinance because they fear it could damage their credit score.
The good news? If done correctly, refinancing a personal loan can actually help your credit in the long run — not hurt it. In this guide, we’ll walk you through how to refinance a personal loan without hurting your credit score, and how to do it smartly to save money.
What Does It Mean to Refinance a Personal Loan?
Refinancing a personal loan means taking out a new loan to pay off your existing one. Ideally, the new loan comes with better terms — such as a lower interest rate, lower monthly payments, or a longer (or shorter) repayment period.
You can refinance with the same lender or shop around and choose a new lender offering more favorable terms.
Does Refinancing a Loan Affect Your Credit?
Yes — but not necessarily in a bad way.
Here’s how refinancing can affect your credit score:
1. Hard Credit Inquiries (Temporary Drop)
When you apply for a new loan, lenders perform a hard inquiry on your credit report. This can temporarily drop your credit score by a few points — usually 5 or fewer.
2. Average Age of Credit (Slight Impact)
Refinancing closes your original loan and opens a new one. This can reduce the average age of your credit accounts, which is a factor in your credit score.
3. New Credit Account (Short-Term Dip)
A new loan is considered a new credit account. Too many new accounts in a short period can lower your score slightly.
BUT…
If you continue to make on-time payments and reduce your total debt, your credit score can bounce back — and even improve — over time.
How to Refinance Without Hurting Your Credit Score
Here are the exact steps to refinance your personal loan while protecting your credit:
1. Check Your Current Credit Score and Report
Before applying, pull your credit reports from Equifax, Experian, and TransUnion (you can do this for free at AnnualCreditReport.com). Check for:
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Inaccuracies or errors
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Late payments
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High balances
Fixing issues on your credit report before applying can help you qualify for better refinance terms — and fewer hard inquiries.
2. Shop Around With Soft Pull Prequalification
Many lenders now offer soft credit checks during the prequalification process. This allows you to:
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See your potential loan terms
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Compare interest rates and monthly payments
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Avoid a hard inquiry until you actually apply
Stick to soft pull offers while shopping to protect your credit.
3. Refinance Within a Short Time Frame
If you decide to move forward with a lender, multiple hard inquiries made within a 14–45 day window (depending on the credit bureau) are typically treated as one inquiry for scoring purposes.
Pro tip: Apply to all your shortlisted lenders within the same 2-week window to minimize credit score impact.
4. Don’t Close Old Accounts Too Soon
After your new loan is approved and used to pay off your old loan, it may take a little time for your credit report to update. Monitor both loans to ensure:
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Your original loan shows as “paid off” or “closed”
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The new loan is correctly listed
Avoid missing payments during this transition.
5. Continue Making On-Time Payments
Even after refinancing, your payment history continues to be the biggest factor in your credit score (35%). Always:
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Pay on or before the due date
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Set up auto-pay if available
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Avoid missing payments — even by one day
On-time payments on your new loan will help rebuild any minor dips in your score.
6. Avoid Taking On New Debt Immediately
If you refinance, try not to open additional credit cards or loans for a few months. Too many new credit applications can signal financial distress and hurt your score further.
Let your credit “settle” after refinancing to avoid bigger dips.
Benefits of Refinancing a Personal Loan
If you refinance the right way, the benefits can outweigh the temporary credit impact:
✅ Lower interest rates = less money paid over time
✅ Lower monthly payments = better cash flow
✅ Faster loan payoff = less debt and improved credit
✅ Improved credit mix = better score in the long term
When Refinancing Might Not Be a Good Idea
There are situations where refinancing may not make sense, such as:
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Your credit score has dropped since you got your original loan
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Your current loan has prepayment penalties
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The fees for refinancing outweigh the savings
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You’re nearing the end of your loan term
Always calculate the total cost of the new loan, including fees, interest, and penalties, before refinancing.
Best Lenders for Personal Loan Refinancing
Some top-rated lenders known for personal loan refinancing with competitive rates and soft pull prequalification include:
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SoFi – Good for high loan amounts and no fees
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Upstart – Good for borrowers with limited credit history
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LightStream – Great rates for excellent credit
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Upgrade – Fast approval process
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Discover Personal Loans – No origination fees
Always compare at least 3–5 lenders before making a final choice.
Final Thoughts
Refinancing a personal loan doesn’t have to hurt your credit — in fact, when done strategically, it can improve your financial health and even boost your score over time.
Focus on:
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Prequalifying with soft credit checks
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Applying within a short time frame
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Keeping up with on-time payments
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Managing your credit mix and utilization
If you refinance wisely, you'll enjoy better loan terms, lower monthly stress, and a healthier credit profile in the long run.