You took out a personal loan when your rate was higher, your credit file was weaker or your options were more limited. A year or two later, your finances look different but you are still paying the rate you agreed to on day one.
That does not mean you have to keep it.
Refinancing a personal loan means replacing your current loan with a new one, usually because the new loan gives you a lower rate, a better repayment structure or a lower overall cost. Done properly, it can save you money. Done badly, it can give you a nicer-looking weekly repayment while leaving you paying more in the long run.
The numbers are what matter.
Can you refinance a personal loan?
Yes. You can refinance an existing personal loan by taking out a new loan and using it to clear what you still owe on the old one.
You then stop making repayments on the original loan and start repaying the new one under its new rate, term and fee structure.
You can potentially refinance through your existing lender or move the debt to a different lender. The better option comes down to what each lender is actually prepared to offer you.
This is important because lenders price risk differently. The lender that gave you the best deal two years ago is not automatically the lender that will give you the best deal today.
Why would you refinance a personal loan?
Saving interest is the obvious reason, but it is not the only one.
The important word here is meaningfully. Moving from one loan to another for a tiny rate reduction is not automatically worthwhile once the costs of refinancing are included.
Refinancing can make sense when:
- Your credit profile has improved: a stronger repayment history and cleaner credit file may put you in a better pricing tier than when you originally borrowed
- You are paying a high interest rate: moving to a meaningfully lower rate can reduce the total amount you repay
- You want lower regular repayments: refinancing over a longer term can reduce the amount coming out of your account each week, fortnight or month
- You want to clear the loan sooner: a shorter term can increase the repayment but reduce the amount of interest paid overall
- Your income or employment has improved: stronger financial circumstances may open up lenders or rates that were not available before
- You want different loan terms: another lender may offer a repayment structure that suits your current situation better
The lower repayment trap
This is the part that catches people.
Say you have three years left on your current personal loan. A lender offers to refinance it over five years and your regular repayment drops noticeably.
That feels cheaper.
But you have also added another two years of repayments. Even with a lower interest rate, you could end up paying more interest overall because the debt stays around for longer.
There is nothing inherently wrong with extending the term if reducing your repayments is the priority. Sometimes creating room in the household budget is exactly what you need.
Just understand what you are trading for that lower repayment.
If saving money is the goal, compare the total remaining cost of your existing loan with the total cost of the refinanced loan. If improving cash flow is the goal, look at the repayment reduction as well.
They are two different calculations.
What fees do you need to check before refinancing?
A lower interest rate means very little if the fees wipe out the saving.
Start with your existing loan. Ask your lender for the amount required to repay it in full and whether an early repayment fee applies.
Then look at the costs attached to the replacement loan. Depending on the lender and how the loan is arranged, these may include establishment and brokerage fees.
A refinance that saves $2,000 in interest but adds $1,500 in fees is a very different proposition from one that saves $2,000 with minimal switching costs.
The advertised rate does not tell you this. The total cost does.
Put everything into the comparison:
- Remaining balance on your current loan
- Current interest rate
- Remaining loan term
- Early repayment or settlement costs
- New interest rate
- New loan term
- Establishment fees
- Broker fees
- Total repayments under the new loan
How to refinance a personal loan step by step
1. Find out exactly what you owe
Do not work from the original loan amount.
You need the current amount required to settle the loan in full. Contact your lender and ask for a payout or settlement figure along with any fees that would apply if you cleared the debt early.
This gives you the real number that needs to be refinanced.
2. Check your current rate and remaining term
Pull out your existing loan agreement or latest statement and find your interest rate, repayment amount and how long is left on the loan.
These are your benchmark figures.
Without them, you cannot tell whether a new offer is actually better.
3. Check your credit file before applying everywhere
Your credit position may have changed since you took out the original loan.
If you have consistently made repayments on time, cleared other debt or generally strengthened your financial position, you may now present as a lower-risk borrower.
The reverse can also be true.
Checking your own credit information first gives you a better idea of what lenders will see and gives you an opportunity to identify anything that looks wrong.
What you do not want to do is send full applications to five different lenders just to find out who might approve you. Multiple formal credit applications can create multiple enquiries on your file.
4. Compare the actual offers
This is where headline rates become mostly irrelevant.
A lender advertising rates “from” a certain percentage is telling you the lowest rate available to qualifying borrowers. It is not telling you what your rate will be.
Compare the offers available to your profile using the same loan balance and, where possible, the same repayment term.
Look at the actual rate, fees, repayments and total amount repayable.
If one lender offers a slightly lower rate but materially higher fees, the supposedly cheaper loan may not be cheaper at all.
5. Pay out the existing loan
Once the refinance is approved, the existing loan needs to be repaid in full.
Exactly how this happens depends on the lender. The funds may be used to pay the existing lender directly or you may need to arrange settlement yourself.
Do not assume the old loan has disappeared just because the new one has been approved. Confirm that the balance has been cleared and that the old account is closed before cancelling any existing payment arrangements.
You then make repayments under the new loan.
When is refinancing actually worth it?
There is no magic interest-rate difference that makes refinancing worthwhile for everyone.
It depends on how much you still owe, how long you have left to repay it and what switching will cost.
Generally, the more debt and time remaining on a high-rate loan, the more room there is for a lower rate to make a meaningful difference.
If you only have a small balance and six months left to pay, refinancing may achieve very little. If you have $25,000 outstanding with four years remaining at a high rate, the potential difference is much larger.
Run the full comparison rather than guessing from the percentage rate.
Our loan repayment calculator can help you compare different rates and terms before deciding whether refinancing stacks up.
When refinancing might not be the right move
Refinancing is not automatically an upgrade.
If you owe $12,000 and refinance into a new $20,000 loan because the extra $8,000 is available, you have not simply refinanced. You have increased your debt.
Sometimes there is a legitimate reason to do that. Just treat the extra borrowing as a separate decision rather than assuming it is automatically a good deal because the old loan has been refinanced.
It may make little sense if:
- You are already close to paying the loan off
- Your new rate is not much lower than your existing rate
- Early repayment and new loan fees absorb most of the saving
- You have to substantially extend the term to make the new repayments work
- Your financial position has deteriorated and the new rate is higher
- You are refinancing mainly to borrow more rather than solve the cost of the existing debt
Is refinancing the same as debt consolidation?
Not quite.
Personal loan refinancing normally means replacing one existing loan with another.
Debt consolidation means using a new loan to repay multiple debts, such as several personal loans, credit cards or other credit accounts, leaving you with one repayment.
The mechanics are similar, but the goal is different.
If you only want to improve the rate or terms on one personal loan, you are refinancing. If you are trying to bring several debts together, you are looking at debt consolidation.
Does refinancing affect your credit score?
It can.
When you make a formal application for credit, the lender may carry out a credit enquiry that appears on your credit file. Making several credit applications in a short period can work against you because repeated enquiries can look like a sign that you are urgently seeking credit.
That is why applying separately to lender after lender is not a particularly efficient way to compare refinancing options.
Lending Room uses a soft credit check during our initial assessment, which does not affect your credit score. We can then assess which lenders on our panel are actually suited to your application before moving forward.
How Lending Room compares personal loan refinancing options
This is where using a broker becomes useful.
Two lenders can look at the same person and come back with different rates because each lender has its own credit criteria, pricing model and appetite for different types of borrowers.
Lending Room works with a panel of 20+ vetted lenders. Instead of you trying to work out which lender is most likely to suit your situation, we assess your income, expenses, credit profile and existing loan and match your application to the lenders that fit.
One application gives us what we need to assess the options. We run a soft credit check during the initial assessment, then talk you through the rates, fees and overall costs available before you commit to anything.
Personal loan rates on our panel start from 8.99% p.a. (AIR). Establishment fees up to $450 and broker fees up to $1,500 may apply.
Frequently asked questions
Can I refinance a personal loan to get a lower interest rate?
Yes. Getting a lower rate is one of the main reasons to refinance. Whether you qualify for one depends on your current financial position, credit profile, loan amount and the lender assessing the application. Compare the total saving after fees rather than looking at the rate alone.
How soon can you refinance a personal loan?
There is no single timeframe that applies to every lender. The bigger question is whether refinancing makes financial sense this early in the loan. Check the settlement cost on your current loan and compare it with the total cost of the replacement before changing anything.
Can I refinance with the same lender?
Potentially. Your existing lender may be willing to offer different terms, although this depends on its lending criteria and products. It is still worth comparing the offer against other lenders rather than assuming staying where you are is cheapest.
Can I refinance a personal loan if my credit score has improved?
Yes. An improved credit profile is one of the strongest reasons to check your refinancing options. If lenders now assess you as lower risk than when you originally borrowed, you may qualify for more competitive pricing. Approval and rates still depend on the rest of your financial position.
Is it worth refinancing for a lower monthly repayment?
It can be, particularly if reducing your regular outgoings is the priority. Check how the lower repayment is being achieved. If the loan term is being extended significantly, you may pay more interest overall even though each repayment is smaller.
Can I borrow extra when refinancing?
Potentially, subject to affordability and lender criteria. The new loan would need to cover both the balance being refinanced and the additional amount you want to borrow. Remember that borrowing extra increases your total debt, so compare the cost based on the full new loan rather than the refinance portion alone.
What happens to my old loan after refinancing?
The existing balance is paid in full and the old loan is closed. You then repay the replacement loan under its new terms. Confirm the original account has been fully settled before cancelling any existing automatic payments.
For independent information about borrowing, credit contracts and consumer rights, visit Consumer Protection.
This article is for general information only and does not constitute financial advice. Lending Room is a registered financial services provider (FSP486566). We are a broker and do not lend directly. Rates from 8.99% to 29.95% p.a. (AIR). Establishment fee up to $450 and broker fee up to $1,500 may apply. Your rate and approval are subject to lender credit criteria.