Refinancing means taking loan from a bank to pay off the loan taken from another bank. You may opt for this if you are not happy with the service of your existing bank or if there is a chance of getting lower rate of interest from another bank. Banks and HFCs may reduce (or completely waive off) the prepayment penalty if you pay the loan from your own source of funds and may charge a penalty if you pay it by taking a loan from another lender depending on the current loan scheme (i.e, floating or fixed interest loans).