Yes, much like a mortgage, personal loans can be refinanced in Australia.
Refinancing a personal loan involves taking out a new loan with new terms, and using those funds to pay off the original loan.
People often refinance personal loans to take advantage of a lower interest rate or to reduce their monthly payments. If either or both are possible, refinancing could save you a significant amount of money over the life of the loan.
Types of loans you can refinance in Australia
Ultimately, whether you can refinance your loan will depend on the policies of your lender and your personal financial situation.
Westpac customers who carry a car loan can’t refinance, for example. And CommBank offers their customers the ability to increase a loan amount, alter repayments and due dates, so refinancing might not be necessary.
Why consider refinancing a personal loan?
You want to consolidate your debt. Multiple debts can be challenging to remember and to budget for. You can refinance a personal loan, along with other debts, and transform multiple bills into a single monthly repayment.
You want lower your monthly repayments. If your loan repayments are putting a strain on you, consider refinancing to a lower rate or longer term to lower your monthly premiums.
You want to reduce your overall debt. If getting out of debt is your priority, you might want to refinance your personal loan to a shorter term to enable a more aggressive strategy to pay it off sooner.
You have a better credit score now. The personal loan interest rate you’re paying on based on your credit score at the time of application. If your credit standing has increased since you took out the personal loan, you have more ‘buying power’ and might qualify for a better interest rate.
You can get a better offer. Your circumstances change. The market and product offerings change. By reviewing your personal loan options once a year, you might find that different lenders can offer a better deal. Refinancing is a way to move your current loan to that new lender.
How to refinance a personal loan
Reflect on what you like and don’t like about your current personal loan. It helps to know what you’re looking for, especially if you’re negotiating with multiple banks.
- List the features that are important to you. Would you prefer a lower interest rate over higher credit availability? Communicate what you need and make sure the lender can accommodate.
- Estimate the new loan figure and rewrite your budget.
- Check your bank statements for the past three months. Are there any issues or is there room for improvement?
- Talk to your current lender. See if you can negotiate a better deal. Look at their new customer promotions to gauge the current market.
- Shortlist multiple personal loan products. Research each lender and settle on your top choice before you complete any applications to avoid damaging your credit score.
Try to time your refinancing correctly, when you’re in good credit standing. While this isn’t always possible, if you can, take your time to find the right bank, credit amount, and terms. With most personal loans ranging from $5,000 – $60,000, this is not small change – and no small decision.
Frequently asked questions about refinancing a personal loan
Yes, you can. How much extra money you’re eligible for will be determined by your income, financial history, and personal circumstances.
Yes, you can refinance a personal loan without changing lenders. If you have a personal loan with a bank and they’re offering a better deal to new customers, you might be able to renegotiate your loan. Banks don’t want to lose customers, especially those with a good credit history.
DIVE EVEN DEEPER
It’s harder, but not impossible, for Australians with a low credit score to be approved for a personal loan. You may have fewer lenders to choose from, and the costs may be higher.
There isn’t a minimum credit score for personal loans that Australian lenders agree on, but you’ll generally need a “good” credit rating to qualify for a loan with traditional lenders.