How to switch personal loans
Find out how to switch personal loans and whether it will actually save you money.
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If you have a personal loan you may be wondering whether it’s worth switching loans to save money. There are a few things you need to check before you switch to make sure you will save; this guide will take you through what you need to know to make sure you end up in a better spot than you are currently.
Find out what you need to know to make the right decision for you.
What's in this switching guide?
Compare personal loans you can switch to
Is switching personal loans worth it?
Switching to a new personal loan can offer a number of ways to save money. You could get a better interest rate, reduce your fees or even consolidate other debt into your loan to reduce what you're paying each month overall. However, you could also end up paying more if you're not worth it.
To make sure you don't do this, you need to keep in mind subtract the cost of switching from any savings you get from taking on the new loan. For example, do you have to pay an early repayment fee with your current loan? Is there an early repayment fee on your new loan? Remember to take these into account.
An easy way to do this is by using a loan comparison calculator, like the one below, to see how much you will actually save.
What costs are involved in switching personal loans?
The two costs you may encounter when switching or refinancing your personal loan are fees from your old provider and fees from your new provider.
Your current lender may charge:
- Early repayment fees. You must completely pay off a loan before you can switch away from it. This is often done with money from the new loan. Paying the total balance early may incur early repayment fees, which are usually a percentage of the total amount. Early repayment fees tend to be charged on fixed rate loans rather than variable rate loans.
- Administration fees. If you want to adjust your personal loan in any way, including switching it, you may incur an administration fee. This is usually a flat fee of around $10-30.
- Break, cancellation or exit fees. Many lenders will reserve the right to charge additional fees if you cancel, exit or otherwise break the loan agreement before expected. These may take the form of one or more flat fees.
- Opening an account or taking out a new loan. You will have to pay the usual costs associated with taking out a new personal loan, such as loan establishment fees.
- Administration costs. If you’re refinancing a loan then your new provider may liaise with your old one on your behalf. This, as well as other account management or additional work, usually comes at a cost.
- Account management fees. Sometimes your lender will charge ongoing account management fees on a monthly basis. These should be taken into consideration.
Factors to consider when switching personal loans
- Switching your loan for a different product from the same provider often means you can only switch “like for like”, such as going from one low doc loan to another, or from one secured personal loan to another. Switching companies entirely might give you more choice and more access to competitive rates.
- If your circumstances have recently changed or are set to change in the near future, you need to keep your eligibility for the new personal loan in mind.
- When switching or refinancing loans to take advantage of special offers and temporary deals, remember to consider how these policies will apply in the long run once the promotional period has ended.
- For the ease of refinancing in the future, you may wish to consider looking for loans with lower cancellation or early repayment fees.
How to compare your refinancing options
Refinancing is when you take out a new loan with a preferable interest rate and conditions and use it to fully pay off and close down your current loan. When comparing your refinancing options keep the following in mind:
- Do you want to combine credit card debt, store debt and other types of debt as well? Make sure your new lender will allow you to consolidate the different types of debt you have.
- Your repayments are listed on your credit file and can be taken into account when switching personal loans. If you’re already having trouble managing one loan a lender will not approve you for another.
- Find a new loan that works with your long-term goals. This is not necessarily the one that’s cheapest or the one that has the lowest minimum repayments. You may wish to select a loan that can be repaid more quickly, has flexible terms or has a fixed interest rate.
The easiest way to compare your refinancing options is by using the personal loan comparison calculator, and get started by comparing your personal loan options on the page above.
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