What does refinancing a personal loan mean? Understand benefits, process, and more

Personal loans are an easy financial solution for all sorts of expenses, whether they are sudden or pre-planned. However, when it comes to interest rates, they can often prove costly. Especially with the wrong lender, you can end up paying very high EMIs that can be financially draining.

But, there’s a silver lining — you can refinance your personal loan.

This option allows you to escape the cycle of a high-interest personal loan and secure better rates and more favourable terms. But is it the right choice for you, and how do you go about it?

Here’s everything you must know.

What is refinancing a personal loan?
 

Refinancing a personal loan means transferring an existing personal loan from one lender to another. It is also called a personal loan balance transfer because you don’t get a new loan; you simply transfer the balance to another lender.

For instance, Seema had an active personal loan of ₹5 lakh at an interest rate of 14% p.a. A few months into her repayment, she came across a lender offering a lower rate of 11% p.a.

Hoping to save on interest, she opted for a personal loan balance transfer. When refinancing, she had two choices — either reduce her EMI while keeping the tenure same, or keep the EMI unchanged and shorten the tenure. Seema chose the second option and refinanced her remaining loan amount for the rest of her two-year tenure, saving ₹16,861 in total interest outgo.

That’s the power of refinancing. A lower interest rate, even by a few percentage points, can translate into big savings over time.

Why do borrowers consider refinancing?
 

There are various benefits of refinancing a personal loan, which is why borrowers prefer it. Some of the most common reasons include:

1. Savings on interest outgo
 

The primary reason for refinancing is to save on interest costs. Different lenders charge different interest rates on the loan. If you find a lender offering a lower rate, refinancing can help you save on the interest expense.

2. Lower EMIs
 

As the interest rate reduces, so do your EMIs. Lower EMIs can free up your income, and you can save more for your financial goals.

3. Added flexibility
 

Many people choose to opt for a new lender for better repayment tenures, or even the facility to prepay or foreclose the loan without added charges. This flexibility can make debt management easier.

4. Improve your credit profile
 

Switching to a lender with better terms often simplifies EMI repayments and encourages consistency. Regular, on-time payments reflect well on your credit report and can help improve your credit score.

How to refinance a personal loan?
 

The refinancing process is quite simple and straightforward. You just have to follow some steps and get the loan transferred. These steps are as follows:

Step 1: Assess your current loan
 

First, find out the interest you are paying for the current loan, the outstanding balance, and the remaining tenure.

Step 2: Check your credit score and eligibility
 

Next, check your credit score since a high score can get you low interest rates. Also, assess your eligibility to ensure that you qualify for the new loan.

Step 3: Compare refinancing options
 

Check the refinancing loan options to find a lender offering the lowest interest rates for maximum savings.

FIRSTmoney personal loan by IDFC FIRST Bank comes with interest rates starting as low as 9.99% p.a.

Step 4: Apply for the new loan
 

Once you have shortlisted the new lender, apply for the loan online. Fill out the application form and submit the documents to apply.

Step 5: Fulfil the formalities and complete the transfer
 

Complete the Know Your Customer (KYC) formalities for loan sanctions and complete the transfer process.

Is refinancing a personal loan a good idea?
 

Low interest, savings on EMIs, and better repayment terms are clear benefits of refinancing. But to truly make the most of it, choosing the right lender is crucial. Since the purpose of refinancing is to reduce your financial burden, and not add to it, you need to ensure the new loan doesn’t come with excessive processing fees, hidden charges, or strict terms.

Refinancing a personal loan is worth it if:

1. There is a significant difference in the loan interest rates, like 2% or more
2. A large proportion of the loan is outstanding
3. You refinance the loan in the early years when a larger part of the tenure is left
4. You're struggling with opaque terms, hidden fees, or limited support from your current lender
5. Your credit score has improved, which has made you eligible for lower interest rates

Always weigh the potential savings against any associated costs. Go ahead with refinancing only when the long-term benefits clearly outweigh the switching expenses.

Why is the FIRSTmoney personal loan a practical and beneficial refinancing choice?
 

Refinancing a personal loan works best when the transition to the new loan is simple and beneficial. This is where FIRSTmoney comes into the picture. Some of the reasons it stands out include:

1. Quick, 100% digital process so you can apply and receive funds in your account within minutes
2. No documentation. You need to just display your physical PAN card during the video KYC
3. Flexible repayment options to pick a tenure that suits your income and lifestyle
4. Competitive interest rates starting from 9.99% p.a.
5. Zero foreclosure charges if you want to close your loan early
6. Real-time tracking so you’re always updated on your application status
7. Trusted by millions and rated among the World’s Best Banks 2025 by Forbes, in partnership with Statista

Apply for a FIRSTmoney personal loan by IDFC FIRST Bank and take control of your debts today. Enjoy lower interest rates, reduced EMIs and save more for your financial goals.