Refinance your personal loan

What is refinancing a personal loan?

Personal loan refinancing is when you take out a new personal loan and use it to pay off an existing loan. You might want to do this if you spot a better loan you are eligible for, for example if it has lower interest rates or fees. It's also commonly done by people who have improved their credit score and want to take advantage of lower rates and can be done through your existing lender or through an entirely different lender.

If you qualify for a loan with a lower interest rate than your current personal loan, refinancing can save you money over the lifetime of your loan - however keep an eye out for early repayment fees in your original loan as these could wipe out any potential savings.

How do you refinance a personal loan?

Refinancing your personal loan may sound complicated, but the process tends to be fairly straight forward:

• Compare personal loans with your existing loan to see if there's a better deal. Keep in mind most lenders advertise their lowest rates, and depending on your credit score you may be charged a higher rate.
• (Optional) Call your current lender and try to negotiate a price match or lower rate. If your credit score has improved since you took out the loan, be sure to mention that.
• Apply for your new loan.
• If approved, your new lender will either pay the funds to you for you to pay off your old lender, or your new lender will pay your old lender directly.

When should I look at refinancing a personal loan?

You should look at refinancing your personal loan, in short, when you think you can save money or if you need to extend your loan term. There could be a few reasons for this:

• Your credit score has improved. If your credit score has improved, you may qualify for a loan with better terms and a lower rate than your current loan. This could be with your current lender or through a whole new lender.
• You've found a better deal. If you see a loan you're eligible for that looks like it has lower rates or fees, that's a good enough reason to refinance. Be sure to get a quote from this potential new lender, as advertised rates can vary from reality depending on your credit score.
• You're consolidating debt. If you have multiple types of debt, it could be worth refinancing into a personal loan that can pay them all off so that you are left with one single debt. This makes it easier to manage repayments and, depending on your other debts, could result in a lower interest rate.
• You need a longer loan term. If you've had your loan for a while and need more time to pay it off or want to lower your monthly repayments, refinancing can enter you into a new contract and a new loan term. Remember that the longer your term, the more you pay overall.

Other than ensuring your new interest rate is lower than your old, the big thing to watch out for are break fees or early repayment fees. If your old lender charges these, they could potentially wipe out the savings you would make through refinancing.

Does refinancing your personal loan hurt your credit score?

Refinancing can hurt your credit score in some circumstances and it can improve it in others. Take a look at some of the ways refinancing can potentially harm and benefit your credit score:

What are the costs of refinancing a personal loan?

Banks and lenders don't want you jumping ship every time you see a cheaper rate from a competitor, which is why refinancing can come at a cost.

Fees to take into account when calculating the costs of refinancing include the following:

• Application fees could set you back as much as $300, so confirm if you will be charged a fee on the new loan.
• Early repayment fees, or break fees, are sometimes charged by lenders and can put a considerable dent in the savings you could make from switching. Some are a flat rate, and others can be a percentage of your outstanding balance. Either way it could be hundreds of dollars.

When determining the value of refinancing, remember to take all aspects of both loans into consideration.

Why compare personal loans with Finder?

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• How many times can I refinance a personal loan?

  You can refinance a personal loan as many times as you'd like. You'd have to keep checking to see if its worth it, however if you have no early repayment or break fees the maths becomes simpler.

  It's important to remember that your credit score could be temporarily damaged when you take out a new loan. This is typical of how credit scores are measured, so by meeting your repayments in full and on time you could see your credit score return to normal or improve.

• Can I refinance with the same lender?

  You can refinance with your existing lender, and it's likely the most straight forward option you have. If they have deals for new customers, or if your credit score has improved, then you could have a decent case to be put on a lower rate.

Written by

Rebecca Pike

Senior writer

Rebecca Pike is Finder's senior writer for money. She joined Finder after almost four years writing for business publications in the mortgage and finance industry, including three years as editor of Mortgage Professional Australia. She regularly appears as a money expert on programs like Sunrise and Today, as well as across radio and newspapers. She also holds ASIC-recognised certifications in Tier 1 Generic Knowledge and Tier 2 General Advice Deposit Products. See full bio

Rebecca's expertise

Rebecca has written 184 Finder guides across topics including:

• Home loans
• Cost of living
• Budgeting