Refinance A Personal Loan – All Things Refinancing

Did you know that you can refinance a personal loan? The concept of refinancing is not new. It usually accompanies large cash loans. However, refinancing can serve a range of benefits regardless of whether you have a large loan or small cash loans.

It isn’t challenging to understand refinancing basics, and reading up on the topic could save you time and money. Whether you want to alter your mortgage loan or refinance a personal loan, let’s discuss all things refinancing.

Please note that specific ideas and products presented in this article may not be on offer by Monzi or the lenders we work with. This article presents only general information. Consider seeking professional financial, taxation, legal or other advice to check how the information and ideas presented on this website relate to your unique circumstances.

What does refinancing mean?

The act of refinancing involves taking a new loan with better features to replace your existing loan. You can do this by taking a loan with a completely new lender. Or, you can renegotiate your loan terms with your current lender. Essentially, however, once you take your new loan, you use it to pay off the original loan and make your new repayments to the new lender.

There are several reasons people may decide to refinance a loan. Usually, however, it is to save money in the long run by either condensing their loan term or refinancing for a better interest rate. The smaller your loan, the less worried about this you may need to be. However, this does not mean you can’t refinance a personal loan. Maybe you decide that your rate is too high, and you have found another private lender offering a better rate. Or, perhaps you genuinely dislike the customer service you are receiving with your current lender and would like to take your business elsewhere.

These are all very valid reasons for refinancing. You should avoid settling in a loan that you are not happy with. When your money, time, and well-being are on the line, you should look to take the best deal you can get. However, there may also be ways to ease the load of your repayments through refinancing.

Why would you refinance a personal loan?

You can refinance a personal loan or any loan to benefit your situation. The typical notion of ‘benefitting your situation’ aligns with the idea of repaying your loan as soon as possible so that you pay less long-term. Here are some other reasons people decide to refinance:

  • You aren’t happy with your current company’s customer service.
  • Shortening your loan term and making higher repayments will save you money in the long run.
  • You want to maintain your loan term but have spotted a better rate with a different lender.
  • A better rate and a shorter loan term are on offer and manageable for you.
  • You require a longer loan term and a lower rate to manage your repayments.
  • You decide that you can’t get a better rate but need to lengthen your term for smaller repayments, thereby accepting the extra interest (not so smart, but possible).

There are several situations and combinations as to why you may choose to refinance a loan. The list may be more extensive than this, as there are multiple other reasons you may want an out on your current loan. However, this list works to demonstrate the possibilities. If you feel that you desire one of the above options, researching further into the potential of refinancing may be good for you.

How do you refinance a personal loan?

If you believe that you would benefit from refinancing, the process isn’t all that difficult. However, it is worth being fully informed first. For example, an essential aspect of refinancing is ensuring your new loan is cheaper or aligns with your goal. It is often not the best idea to refinance if you aren’t saving yourself any money. If you feel you need to lower your monthly repayments, you should first consider speaking with your lender about possible payment plans. There are four steps to refinance a personal loan.

One: Compare and calculate

Investigate the current options available on the market. You want to know what kind of deals are available and whether they would be beneficial to you. Once you think you have identified one or two alternatives, you will want to compare them against each other and your existing loan. Once you have done this, don’t forget to calculate the cost of refinancing, including any extra fees that may need paying. There are several free calculator and comparison tools available online to help you simplify your decision.

Two: Apply

Once you are confident that the new loan you have chosen will meet your refinancing goals, you’ll want to submit your application. It shouldn’t take too long to lodge your application; you may need to note that you aim to refinance a personal loan.

Three: Repay the existing loan

After you have your approval and the money in your account, you will want to pay out the original loan. In some instances, your new lender may do this for you. However, typically with personal loans, you will have to organise this independently.

Four: Verify

It is imperative to verify with your original lender that there is no outstanding balance remaining and your loan is well and truly closed. This might help ensure you don’t have any headaches further down the line if something didn’t take place correctly.

Where can you refinance a personal loan?

You can refinance a personal loan through any private lender or loan agency offering you a better deal. This could be in a branch or online. At Monzi, we offer personal loans, which, as you may know, can be used for almost any purpose. Meaning if you wanted to find a new lender through our lender-finder, you could take a loan for refinancing.

However, as the lenders in the Monzi network do not necessarily have the same terms as those advertised on our website, this may not be the wisest choice. If you are looking to refinance, ideally, you want to be 100% sure that you will get a better deal before applying. So, whilst Monzi might not be the best avenue to refinance a personal loan, there are other things we can help with. You can use a personal loan for a new car loan, land loans, a jet ski loan, or home improvement loans. Whatever your motivation, Monzi lenders will do their best to potentially help you obtain the cash you need to get jobs done.

Can you refinance with the same bank?

Yes. You can refinance with the same lender, regardless of whether they belong to a financial institution or not. However, it may be more of a negotiation than an actual refinance. This is because lenders may not like to offer the opportunity to refinance a loan they initially gave you.

There is a way to get around this if you don’t particularly want the hassle of finding a new lender. This is by showing your current lender the competitor’s better deal and negotiating. If they wish to keep you as a customer, they may be willing to reevaluate your loan term or interest rate. You will want to ensure that the competitors deal is significantly better to justify the alterations. But, in most cases, your lender may not want to lose the future interest you will pay by having their loan paid off via a refinance.

Is it worth refinancing a personal loan?

Whether or not your loan is worth refinancing depends on a couple of factors. These include the length of your remaining loan term and the remaining value of your repayments. Generally, however, there are four reasons it may be worth it to refinance a personal loan. These being:

  • You’ve used a personal loan repayment calculator and worked out that you’ve found a better deal.
  • You decide you need to consolidate your debt. Using your debt consolidation loan calculator, have worked out that you can roll multiple loans if you borrow a bit extra.
  • Your credit score has improved, and you are now eligible for loans with better features.
  • You want to avoid ongoing costs and have found a lender charging less, or no, additional ongoing fees.

Suppose you are unsure whether to refinance a personal loan. Speaking to a financial advisor may be beneficial. You can potentially do so for free via the National Debt Helpline. Or, if you are looking for some more general advice, you can visit MoneySmart’s debt consolidation and refinancing page.

What extra fees do you need to consider?

There are several additional costs that you may need to factor in when refinancing any sort of loan. For this article, we will only discuss additional fees relevant to refinancing a personal loan. The additional costs may be different when refinancing your car loan or for home loan refinancing.

The most common additional fees you may encounter include early repayment fees and application fees. Your existing lender often charges an early repayment fee (loan break fees) to deter you from wanting to refinance your loan. Lenders usually do this to avoid losing the money they would have made charging you interest. They don’t want you to get out without paying them extra. Lenders charge application fees across numerous loan types. Ensure that you are aware of any application fees with the lender you are looking to refinance with.

Finally, there may be many ongoing fees that can stack up with any loan company. These could include maintenance fees and late fees. All of these extra costs can quickly stack up and potentially offset any savings you would make by refinancing. This is why, when you go to refinance a personal loan, you need to compare the total of all the fees, not just the value of the repayments.

Can you refinance as a couple?

Yes, if you want to add a second name to any type of loan, you will have to refinance. However, this is less common for personal loans as they are typically manageable alone. Often home loans are the loan type with the most frequent refinancing to either add or remove a second person. This is because married couples may seek to upgrade their home. There may have only been one name on the mortgage previously. Adding another may provide access to an increased amount. Alternatively, you may refinance after a divorce, as one person pays out their half, and you refinance to get a better deal on the remaining solo repayments.

Typically, refinancing as a couple gives you access to a more significant sum due to having two incomes. It is perfectly fine to only have one person’s name on the lease, yet both contribute equally to the repayments. You may only need to add a partner to give you access to a better deal or a more significant sum.

Refinance a personal loan

Consolidation vs refinancing

Consolidation and refinancing are very similar concepts, and in some instances, can be used interchangeably. However, loan consolidation generally happens to roll multiple debts, whereas refinancing is typically to get a better deal on one.

Consolidation

Often used to combine multiple debts. If you have several outstanding loans, it can become quite difficult to manage many separate payments to different lenders. For this reason, you may take one large loan with a good term and reasonable interest, to cover all your existing loans and their additional fees. You then use this loan to payout your small debts and are left with one sole debt that you can focus on as a single entity.

Refinancing

You often refinance a single loan. However, when consolidating, you are constantly looking to save money in the long run. Hence, the terms can be interchangeable. You can refinance for several reasons, although the end goal is almost always to secure a better deal and save money.

When is a good time to refinance?

Your life will move through various phases as you age. From your first home loan to a family home, onto new salary levels, and downgrading when you become empty nesters. Refinance when significant changes occur. This is typical for home loans as the market changes and so do the elements of your life. Your loan will need to provide you with breathing room for new events.

When to refinance a personal loan may depend on life circumstances and your quantity of existing debt. It is more often than not likely that you will refinance and consolidate at the same time when it comes to personal loans. However, provided the grass is greener on the other side, and not an illusion, you have the opportunity to refinance whenever you like. However, this is not always common as, once you factor in all the additional costs, your loan may be too small to warrant refinancing.

Does refinancing hurt your credit?

There is room to both improve your credit and harm it when refinancing any type of loan. You may hurt your credit score if you have multiple loan applications listed. Refinancing numerous times may negatively impact your score; for this reason, you want to ensure the loan you refinance for ticks all the boxes. There is also room to default if you can’t make your repayments. However, this risk comes with all loan types.

It can help your credit score if you are looking to consolidate, as it will mean you have fewer open accounts. Having only one outstanding balance, whilst more significant, can still make you look like you aren’t as reliant on credit. Being able to meet all your repayments, rather than struggling with them, is bound to result in credit report improvement eventually. Although, again, this is the same concept with any loan, and refinancing is not a requirement to achieve this.

Do you need good credit to refinance?

Generally speaking, yes, you usually will need good credit to refinance a loan. This will be the case if your goal is to borrow a more considerable amount than you initially had. If you are looking to consolidate, you may get bad credit loans through Monzi to refinance a personal loan.

However, if it is a home loan that you seek to refinance and your credit is in a worse place than it initially was, there may still be some ways to do so. Try refinancing with your existing lender. By doing this, you will be applying with a lender you know, who may be more willing to help. Consolidate all your current loans into one home loan. Or speak with your mortgage broker for more in-depth aid as to what your options may be.

If you are unsure what your current credit report looks like, you may be able to request a free copy. You can do so via a credit bureau to help gain an understanding of where you’re at.

Is refinancing a bad idea?

No. There are plenty of circumstances where refinancing may be a good idea, should you do it correctly. However, there can be bad motivations behind refinancing. Typically, refinancing to reduce your monthly payments with a lowered rate is a good idea. However, you may end up paying more interest in the long run, which could equate to the same amount or a larger amount than your original loan.

In some instances, consolidating debt can also be a bad idea if you do not carry it out well. For example, you don’t want to roll all your debts into a single debt secured against your house. If you aren’t so good at making your repayments, you can lose your home.

What are good loan terms and rates?

Monzi cannot definitively say what is a reasonable rate or term to refinance for. One of the better ways to refinance may be to maintain your term and seek a better rate than what you currently have. This is unlikely to work for everyone. However, it may be an excellent baseline to start with before you figure out the finer details of refinancing.

Generally, though, your goal should be to obtain a better deal than you currently have. And this shouldn’t just be because you’ve seen that the rate and the term on paper. You should do a thorough investigation, calculate what it will be, and identify all the additional fees you may have to pay.

Can you refinance a fixed personal loan?

Yes. As with most fixed loans, you should be able to refinance despite signing a contract. You can break your original fixed-rate contract for a fee. It is up to you to work out whether refinancing will work out cheaper than not. To break this contract, you may be looking at paying a couple of hundred dollars, so make your decision wisely. Break costs are often calculated on the initial loan amount, the remaining term, and the market interest rate (both when you fixed the loan and what it is now).

You may want to refinance your fixed rate personal loans for any of the typical reasons a person looks to refinance. This is entirely understandable, and you should remember that you aren’t locked in. Instead, you will simply have to compensate your lender should you choose to leave.

Can you take a personal loan to refinance your mortgage?

Generally, no. Unless you have been repaying your home loan and have gotten it relatively low. You typically won’t be entitled to enough to cover a mortgage loan with a personal loan. Not only would you not be able to do so, but it also might not be the best idea. This is because the rates on personal loans are often higher than those of a home loan. If you seek to refinance your home loan, you should aim to do so with another home loan.

Can you refinance a personal loan for more money?

You should be able to refinance any kind of loan for more money. This is if your credit score and history is good enough for your lender’s approval. Refinancing for a more significant amount is a great way to consolidate your loans before you borrow, in a sense.

For example, if you wanted to buy a bigger home and combine your existing debts, you could apply for a larger amount and tick both boxes. This can dip into tricky territory; however, talking with a broker may help you navigate this move.

How soon can you refinance your personal loan?

You can refinance a personal loan virtually as soon as you like. For example, maybe you took a loan through an independent lender with very high rates. But then you found Monzi’s lender-finder and started to think about refinancing immediately. Even though you had your original personal loan approved yesterday, Monzi is available to help you find a lender that may be offering a better rate, today.

However, there may be benefits to holding your current loan when it comes to other loan types. These could include a high market that has the potential to descend in the coming months. Or, maybe you chose a fixed rate for two years and would like to wait before refinancing to avoid the break fees. These are all very valid reasons. You need to do what’s best for you. That may mean not refinancing at all. But, provided you know how refinancing can help you, you will be setting yourself up for success.

Can Monzi help with refinancing?

Yes, as mentioned, you can take a personal loan to refinance a personal loan or consolidate debt. However, this isn’t always the most concise option. It is entirely up to you what you choose to use your personal loan for. However, some ideas other than refinancing might include:

These are just some ideas to help get you thinking. However, we don’t recommend taking a loan just for the sake of it. Even though you can use a personal loan for almost anything, it is in your best interest to use them wisely.

If you think you are ready to place an application, you can click ‘apply now’ or scroll up to our loan slider at the top of the page to get started.

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Factor In

Costs

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You won't use a penny to apply for our lender-finding service, but here's some costs you could expect from a lender

Loan amount

$300 - $2,000

Terms

12 months (minimum)

12 months (maximum)

Costs

20% upfront establishment fee

+ 4% monthly fee

Example

Loan Amount of $1,000 over 6 months repayable weekly (25 weekly repayments). $1,000 (Principal Amount) + $200 (20% Establishment Fee) + $240 (fees based on 4% per month over 25 weeks) = $1,440 total repayable in 25 weekly installments of $57.60.

Under the current legislation, most small personal loan providers don’t charge an annual interest rate (you’ll know this as an APR) %. The maximum you will be charged is a flat 20% Establishment Fee and a flat 4% Monthly Fee. The maximum comparison rate on loans between $300 and $2000 is 199.43%. The minimum and maximum loan term is 12 months. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

Loan amount

$2,001 - $4,600

Terms

13 months (minimum)

24 months (maximum)

Costs

48% Annual Percentage Rate (APR)

67.41% Comparison Rate p.a.

Example

Loan Amount of $3,000 over 18 months repayable weekly (78 weekly repayments). $3,000 (Principal Amount) + $400 (Establishment Fee) + $1,379.06 (reducing interest) = $4,779.06 total repayable over 18 months with weekly installments of $61.27.

The Annual Percentage Rate (APR) for Secured Medium Loans is 48%. The Typical Comparison Rate is 67.41% p.a. The minimum loan term is 13 months and the maximum loan term is 24 months. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate with the lender that finances your loan. Click here to see a worked example.

Loan amount

$5,000 - $10,000

Terms

13 months (minimum)

24 months (maximum)

Costs

21.24% Annual Percentage Rate (APR)

48% Comparison Rate p.a.

Example

Loan Amount of $10,000 over 24 months repayable weekly (104 weekly repayments). $10,000 (Principal Amount) + $5,577.12 (Interest) = $15,577.12 total repayable over 24 months with weekly installments of $149.78.

The Annual Percentage Rate (APR) for Secured Large Amount Loans is 48%. Maximum Comparison Rate is 48% p.a. The minimum loan term is 13 months and the maximum loan term is 24 months. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate with the lender that finances your loan. Click here to see a worked example.