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Why might I consider refinancing my personal loan?

Some of the reasons a borrower may consider refinancing their personal loan include the following.

To consolidate debts

If you have multiple debts, say for example a personal loan and a couple of credit cards, refinancing to consolidate all of these into a single personal loan could be beneficial. Managing the repayments for one debt could prove to be much easier than staying on top of multiple. Additionally, personal loan interest rates can often be lower than credit card rates, meaning debt consolidation could result in less money spent on interest charges.

To take advantage of an improved credit score

If you have had consistently good credit behaviour since you initially took on your personal loan, there’s a chance your credit history may have improved and in turn more low rate loans may now be available to you. If this is the case, it could be worthwhile making the switch to a loan with a lower interest rate if it means you could save money on interest charges over the life of the loan. Be sure to factor in any fees and charges you may incur by refinancing when doing your calculations in order to get a true understanding of your potential savings.

To access reduced interest rates

It’s no secret that the market tends to fluctuate, and while you may have been given a good deal on your loan when you were initially approved, there could now be more attractive options available. It's important to have a good understanding of the pros and cons of both variable interest rate loans and fixed interest rate loans, particularly if you are considering refinancing for this purpose.

To access better features

Perhaps a redraw facility, or similar, didn’t mean much to you when you first got your personal loan, but now you’ve reconsidered. Refinancing to a loan that offers the extra features that are important to you could improve your borrowing experience and may even potentially save you money.

To extend the loan term

If your financial situation has changed and you are finding it difficult to meet your current repayments, you may consider refinancing to a new personal loan on a longer/different term to lower your fortnightly or monthly repayments. Keep in mind that even though your regular repayments will be reduced, longer loan terms generally mean paying more in interest charges over the life of the loan.

What are the main features to look for when refinancing a personal loan?

  • Interest rate: This will either be fixed or variable and will determine how much you will be charged in interest on the loan amount borrowed.
  • Comparison rate: A combined total estimate of the cost of the loan including the interest rate plus any upfront or ongoing costs. Take note of different comparison rates as well as interest rates when comparing your options.
  • Fees and charges: These can include loan application fees, establishment fees, monthly fees, early repayment fees, redraw fees and other ongoing fees.
  • Secured/unsecured: If the loan is secured, you will need to provide collateral in the form of an asset such as your home or a new car. Unsecured personal loans do not require collateral but often have higher interest rates than secured loans.
  • Extra repayments: This feature will determine whether or not you can make payments on your loan in addition to your regular repayments.
  • Redraw facility: Loans that accept extra repayments may also allow you to redraw this money if you’re ahead in repayments and in need of some cash.

How do I refinance my personal loan?

  1. Search and compare available personal loan options.
  2. Consider checking out whether RateCity's Personal Loan Marketplace could find you a potential deal. This could minimise your chance of being rejected and hurting your credit score.
  3. Weigh up any applicable fees and charges with the benefits and potential savings you’d make by switching your personal loan.
  4. Contact the new lender to make an application to refinance.
  5. The lender will approve or reject your application based on your financial circumstances, your credit rating, and their terms and conditions.
  6. Pay any required exit fees to your old lender and any upfront fees to your new lender.
  7. Ensure your old loan account has been closed and begin making repayments on your new personal loan.
What are the pros and cons of refinancing a personal loan?
  • You could make your finances more manageable if you are refinancing to consolidate debts.
  • You may save money on interest charges if you refinance to a loan with a more competitive rate.
  • You might be able to access better features that improve your borrowing experience.
  • Early exit penalties and establishment fees could add up and outweigh any potential savings.
  • If you refinance to a loan on a longer term, you may end up paying more in interest charges over the life of the loan.
  • Refinancing your personal loan can take considerable time and effort, so it’s a good idea to factor this in when deciding whether it’s right for you.

Frequently asked questions

Does refinancing a personal loan hurt your credit score?

Personal loan refinancing means taking out a new loan with more desirable terms in order to access a more competitive interest rate, longer loan term, better features, or even to consolidate debts.

In some situations, refinancing a personal loan can improve your credit score, while in others, it may have a negative impact. If you refinance multiple loans by consolidating these into one loan, it could improve your credit score as you’ll have only one outstanding debt liability. Your credit may also improve if you consistently pay the instalments on time.

However, applying to refinance with multiple lenders could negatively affect your credit if your applications are rejected. Also, if you delay or default the repayment, your credit score reduces.

Is a personal loan a variable or fixed-rate loan?

Depending on the personal loan lender, you may be able to choose between a fixed and a variable interest rate. But, there are a few distinct differences between the two, so it’s important to weigh up the pros and cons before deciding on what’s right for you.

A fixed interest rate loan gets you the convenience of knowing exactly how much you need to repay each fortnight or month. On the other hand, you generally won’t be able to make lump sum or advanced payments to close your personal loan early - or at least not without a penalty.

With a variable interest rate personal loan, you may be able to get a longer loan repayment term, with the option of paying off the loan early. You typically won’t need to pay any additional charges for an early full repayment either. The potential disadvantage with an interest rate that can change is that your repayment is not entirely predictable, as it can fluctuate with the market. However, you’ll likely have more options as more lenders offer a variable interest rate personal loan.

Can you refinance a $5000 personal loan?

Much like home loans, many personal loans can be refinanced. This is where you replace your current personal loan with another personal loan, often from another lender and at a lower interest rate. Switching personal loans may let you enjoy more affordable repayments, or useful features and benefits.

If you have a $5000 personal loan as well as other debts, you may be able to use a debt consolidations personal loan to combine these debts into one, potentially saving you money and simplifying your repayments.

Can I merge my personal loan with my home loan?

Yes, you can refinance your home loan and, in the process, merge or consolidate your personal loan and home loan. By doing so, you can lower the number of debts you have, and you may also reduce the total interest you have to pay.

However, you should consult a financial advisor or a mortgage broker to confirm that you are decreasing your total outstanding debt, including interest payments. The repayment term for a home loan can be much longer than that for a personal loan, and by merging the two, you could be repaying a higher amount over the full term.

What is a bad credit personal loan?

A bad credit personal loan is a personal loan designed for somebody with a bad credit history. This type of personal loan has higher interest rates than regular personal loans as well as higher fees.

Should I get a fixed or variable personal loan?

Fixed personal loans keep your interest rate the same for the full loan term, while interest rates on variable personal loans may be raised or lowered during your loan term.

A fixed rate personal loan keeps your repayments consistent, which can help keep your budgeting consistent. You won't have to worry about higher repayments if your rates were to rise. However, on a fixed loan you’ll also potentially miss out on more affordable repayments if variable rates were to fall.

Can I repay a $3000 personal loan early?

If you receive a financial windfall (e.g. tax refund, inheritance, bonus), using some of this money to make extra repayments onto your personal loan or medium amount loan could help reduce the total interest you’re charged on your loan, or help clear your debt ahead of schedule.

Check your loan’s terms and conditions before paying extra onto your loan, as some lenders charge fees for making extra repayments, or early exit fees for clearing your debt ahead of the agreed term.

What is a personal loan?

A personal loan sits somewhere between a home loan and a credit card loan. Unlike with a credit card, you need to sign a formal contract to access a personal loan. However, the process is easier and faster than taking out a mortgage.

Loan sizes typically range from several hundred dollars to tens of thousands of dollars, while loan terms usually run from one to five years. Personal loans are generally used to consolidate debts, pay emergency bills or fund one-off expenses like holidays.

What is the average interest rate on personal loans for single parents?

Like other types of personal loans, the average interest rate for personal loans for single parents changes regularly, as lenders add, remove, and vary their loan offers. The interest rate you’ll receive may depend on a range of different factors, including your loan amount, loan term, security, income, and credit score.

How much can you borrow with a bad credit personal loan?

Borrowers who take out bad credit personal loans don’t just pay higher interest rates than on regular personal loans, they also get loaned less money. Each lender has its own policies and loan limits, but you’ll find it hard to get approved for a bad credit personal loan above $50,000.

How can I get a $3000 loan approved?

Responsible lenders don’t have guaranteed approval for personal loans and medium amount loans, as the lender will want to check that you can afford the loan repayments on your current income without ending up in financial hardship.

Having a good credit score can increase the likelihood of your personal loan application being approved. Bad credit borrowers who opt for a medium amount loan with no credit checks may need to prove they can afford the repayments on their current income. Centrelink payments may not count, so you should check with the lender prior to making an application.

How long does it take to get a student personal loan?

Completing an online personal loan application can often take anywhere from 10 minutes to 1 hour. Depending on your lender, processing your personal loan application may take anywhere between 1 and 24 hours. If your personal loan application is approved, you may receive the money in your bank account the following business day, or, in some cases, the same day.

What causes bad credit history?

Bad credit history is caused by filing for bankruptcy, defaulting on your debts, falling behind on your repayments and having loan applications rejected. Lenders are wary of borrowers who demonstrate this sort of behaviour because it suggests they might struggle to repay future loans.

Borrowers with bad credit may find it more difficult to be approved for a loan, or they may get higher interest rates when they do get approved.

Which lenders offer bad credit personal loans?

Several dozen lenders offer bad credit personal loans in Australia. These are generally smaller lenders that aren’t household names.

What is an unsecured bad credit personal loan?

A bad credit personal loan is ‘unsecured’ when the borrower doesn’t offer up an asset, such as a car or jewellery, as collateral or security. Lenders generally charge higher interest rates on unsecured loans than secured loans.

What is a secured bad credit personal loan?

A bad credit personal loan is 'secured' when the borrower offers up an asset, such as a car or jewellery, as collateral or security. If the borrower fails to repay the loan, the lender can then seize the asset to recoup its losses.

How do you get a bad credit personal loan?

You can get a bad credit personal loan by applying directly to a lender, by going through a mortgage broker or by using a comparison website like RateCity.

How much can I borrow with a personal loan?

It’s unusual for a lender to provide a personal loan of above $100,000, although there is no formal limit. As with all lending products, each lender sets its own policies, while each borrower is assessed on a case-by-case basis.

What is a bad credit rating/score?

Credit ratings or credit scores are calculated by credit reporting bodies such as Equifax, Dun & Bradstreet, Experian and the Tasmanian Collection Service. These are separate organisations, so they use different systems.

Equifax gives scores between 0 and 1,200:

  • 833 to 1,200 = Excellent
  • 726 to 823 = Very good
  • 622 to 725 = Good
  • 510 to 621 = Average
  • 509 or less = Below average

Dun & Bradstreet (through the Credit Simple service) gives scores between 0 and 1,000:

  • 800 to 1,000 = High end
  • 700 to 799 = Great
  • 500 to 699 = Average
  • 300 to 499 = Room to improve
  • 299 or less = Low

Experian gives scores between 0 and 999:

  • 961 to 999 = Excellent
  • 881 to 960 = Good
  • 721 to 880 = Fair
  • 561 to 720 = Poor
  • 0 to 560 = Very poor

The Tasmanian Collection Service doesn’t give scores. Instead, it prepares credit reports for credit providers and then lets those providers make their own assessment.

When was comprehensive credit reporting introduced?

Comprehensive credit reporting was introduced to make credit reports fairer and more accurate. Under the previous system, credit providers only saw negative information about potential borrowers. Now, they're able to see both positive and negative information, which means that credit providers can see if a borrower’s negative credit behaviour is consistent or a mere one-off.