How to refinance a personal loan

Can you refinance a personal loan?

Refinancing a personal loan is an option for many borrowers. As lenders compete for new customers, refinancing your loan may get you a lower interest rate, fewer fees, or useful features to help you pay it down quicker. You should be careful though, as you may be charged fees for refinancing.

What is personal loan refinancing?

When you refinance a personal loan, you’re essentially taking out a new loan to pay off your old one. Once you're approved for your new personal loan, your new lender will pay the debt you owe your old lender or hand you the funds to do so yourself, and you can begin making scheduled repayments towards your new loan.

How much does it cost to refinance a personal loan?

How much it costs to refinance your personal loan will depend on your current loan and the loan you want to refinance to. You may encounter fees like:

• Break or early repayment fees: If you’re on a fixed interest rate, you may have to pay a fee to end your loan agreement early.
• Application fees: Some lenders charge an admin fee to set up your loan.
• Security-related fees: If you have a secured personal loan (one with an asset attached to it), your new lender may pass on the cost it bears to register its interest in that asset.

Switching to a personal loan with a lower interest rate could save you hundreds of dollars over the remaining loan term, even after accounting for refinancing costs. Not to mention, some lenders may offer you cashback to refinance with them. It’s worth weighing the potential savings and any cash bonuses against any fees you’ll have to pay.

Why should I refinance my personal loan?

There are a few reasons you might refinance your personal loan, like:

• You want to consolidate multiple debts into a single, manageable monthly repayment.
• You found another loan with better terms, a lower interest rate, or fewer fees.
• Your credit score has improved since you took out the loan, allowing you to access better terms, a lower interest rate, or more money.

Is refinancing a personal loan worth it?

The drive for most people to compare personal loans is to save money, and it’s important to make sure refinancing is worth the effort. While a better deal may look promising on paper, make sure to do your calculations before making the switch.

Tally your current repayments on the existing loan, including fees and other charges. Compare this to the cost of your new loan, including any exit and establishment fees. Make sure to also compare the total cost of each loan over their respective terms, as stretching out a loan’s life can see you paying more interest overall. 

To make it easy to crunch the numbers, check out our personal loan repayment calculator. It can give you an estimate on how your new loan’s interest rate and terms stack up against those of your existing one.

How to refinance a personal loan?

Decided that refinancing your personal loan is the right option? Here’s how the process typically works:

• Compare your personal loan options and choose one that suits your needs.
• Do your research. Compare each loan’s interest and comparison rates, fees, and features, and make sure the new loan can be used for your intended purpose.
• Apply for the new loan.
• Once you’re approved, you’ll either be given the funds, which you can use to pay off your current loan, or your new lender will hand the money straight to your old lender.
• Close the old loan account. Get in touch with your previous lender and arrange the account’s closure. Confirm there’s no outstanding balance, just to be safe.
• Cancel any automatic payments or direct debits to the old loan and set up new repayments to make sure you don’t accidentally miss any.

If you’re finding it difficult to manage your current loan repayments or debts, you can seek advice from a financial counsellor. Financial counsellors offer free, independent, and confidential advice. You can speak to one through the National Debt Helpline (NDH) on 1800 007 007.

Can I refinance my unsecured personal loan?

It’s typically easier to refinance an unsecured personal loan than a secured personal loan, as there’s no asset tied to it. 

Can I refinance my secured personal loan?

You can also usually refinance a secured personal loan, but your new lender would need to accept the asset that’s being used to secure the loan, then register its interest in the asset. There may be a fee for doing so, which they may pass onto you.

The main issue you’re likely to encounter is that the asset’s value may have depreciated since you first took out your loan. For example, a new car generally loses value as soon as you drive it off the lot and each year thereafter. In some cases, your new lender may not accept your asset as security for a loan or may only secure your loan up to the asset’s current market value.

If your lender won’t accept your security, you may be able to refinance to an unsecured loan instead, though these usually have higher interest rates.

Can I borrow more money when refinancing my personal loan?

Your new lender will assess your financial situation as part of the application process and may let you borrow a larger sum than you were originally offered, if you show you can afford the repayments.

Will refinancing a personal loan hurt my credit score?

Refinancing a personal loan can affect your credit score, but the impact will depend on your individual circumstances and how you manage the process.

As with any form of credit, making multiple applications in a short period or applying for loans you’re unlikely to qualify for can lower your credit score. That’s because each application may trigger a hard credit check, and these can temporarily reduce your score.

That said, refinancing can also improve your credit score over time. For example, if you’re consolidating multiple debts into one loan, you’ll have fewer open accounts with outstanding balances—something lenders generally view favourably.

Your repayment history also plays a key role, as making consistent, on-time repayments helps your score in the long run.

Even if your score drops slightly at first, refinancing your loan can still be worth it if it saves you money or makes your repayments more manageable. It can reduce financial stress and help prevent missed payments or defaults.

However, it’s important to weigh up the costs and benefits. For example, refinancing to a longer term can lower your monthly repayments, but you may end up paying more interest overall. Make sure the new loan also aligns with your financial goals.

If you’re unsure whether refinancing is right for you, you may consider speaking with a personal loan broker for more tailored advice. You can also check your credit score with Canstar or via the Canstar App.

How to compare personal loans to find a better deal

There are a few things you should think about when comparing personal loans:

Fees

If you’re not careful, your new loan could end up costing more than you expected. The culprit? Fees. Some fees to look out for are application, service or ongoing fees, and exit or ‘break cost’ fees on your old loan. Depending on how you manage your finances, it could also be worth checking whether you would be charged fees if you’re late making a repayment or choose to make extra repayments.

Interest rates: fixed or variable?

The exact interest rate a lender charges you will depend on your financial situation, including your credit score. If you’re comparing interest rates and weighing up a new loan, you’ll need to calculate more than just how much lower the new rate is and what that equates to week-to-week or month-to-month. You’ll also need to consider whether a fixed or variable interest rate best fits your needs.

• Fixed rate: Your repayments will remain the same throughout the loan term, making it easier to budget. The downside is they tend to have less flexible repayment terms and fewer features (like redraw facilities). If you’re planning to pay your loan off early, a fixed rate loan may require a break or early repayment fee.
• Variable rate: Variable rate personal loans may offer favourable features, such as a redraw facility, free extra payments to pay off the loan early, and flexible repayment frequencies. However, as the interest rate can go up and down, it may be harder to budget for this type of loan.

Another way to help you work out the true cost of your potential new loan is to check the comparison rate. This combines the interest rate with the fees you’ll likely incur, providing a more holistic measure of the overall cost.

Conditions and features

Personal loans vary in flexibility, so look at the conditions and features to make sure they meet your needs. Check if you can:

• Make additional repayments (and if a fee applies for doing this)
• Access additional repayments you’ve already made (redraw facility)
• Choose from weekly, fortnightly, or monthly repayments to suit your income and lifestyle.

Loan term

Consider an appropriate and realistic timeframe to pay off your new loan. Just be mindful that while longer terms may have lower repayments and, in some cases, more appealing interest rates, they could also cost you more in interest and fees in the long run.