How to Refinance a Personal Loan

With interest rates at record lows, now is a great time to snag a competitive personal loan deal. But before you kick off your comparison, read our refinance guide to ensure you choose the best possible loan for you.

Why refinance?

There are plenty of reasons to refinance your current personal loan, including:

1. Debt consolidation: If you're finding it hard to get ahead with your current loan and credit card repayments, you could roll over your multiple debt into one single loan called a debt consolidation loan. You'll get a lower overall interest rate, saving you money, and because you'll only have to manage one monthly repayment budgeting will be easier.
2. Better deal: Chances are you got a great deal when you took out your loan but how competitive is that rate now? Mozo's debt consolidation loan comparison table helps you find a great value loan by allowing you to input how much you want to borrow and showing you the potential monthly repayments available for each loan option. Repayments will vary from person to person depending on which loans you are eligible for, the interest rate you qualify for, and other factors.
3.  Higher credit limit: Perhaps you signed up with your loan a while ago and your lifestyle has changed due to factors like a growing family. In this case you might be looking for a new loan with a higher borrowing limit.
4. Longer timeframe: Alternatively, you could be finding the timeframe that you took out the loan for is too short and are looking for a new loan with a longer period to bring down your ongoing repayments.

Finding the right refinance loan

Whatever your refinance reason, the same rules apply to ensure you make switching worth it. Here are our top tips:

1. Compare interest rates

With refinance personal loans you'll have the option of a variable interest rate, which may go up or down over time, or a  fixed interest rate where your repayments will be fixed for your loan term.

What's better? Well, that really depends on your financial circumstance. Here are some pros and cons to help you weigh up your options.

Fixed interest refinance loan

Pro: Easy budgeting. When you sign up for a fixed rate loan you'll know what the repayments will be every repayment date making it easier to budget. So no matter what happens to the economy, you will have the security of knowing your interest rate will remain the same.

Con: Less flexibility. With fixed rate loans, features like extra repayments and redraws may be limited or not available. Also if you do think you'll be able to pay out the loan early, you might have to pay a break cost fee. This can be expensive depending on how much of the loan term is left, so before locking in for a long term read the fine print to ensure you time your exit appropriately.

Variable interest refinance loan

Pro: Extra features. There's a clear reason why many borrowers opt for variable rate loans. In addition to more competitive interest rates than their fixed rate counterparts, variable loans have features that can save you money. Ones to look for include free extra repayments, free redraws and flexible repayment frequency.

Con: Affordability. With variable rate loans your interest rate will go up and down with the market. You'll need to have some flexibility in your monthly budget to ensure that if rates go up, you'll be able to afford the repayments. It is a good idea to factor in a rate change of up to 2% when doing your sums.

And don't forget to check the...

Comparison rate: There's another interest rate that all lenders are required to display by law when advertising their loan called a comparison rate. Basically it's a merger of the interest rate with the upfront fees you will incur and makes it easy to compare the true cost of the loan.

2. Watch out for high fees

Interest rates are often considered the biggest money drain when it comes to taking out a personal loan however if you're not careful, fees could also end up costing you big time.

Application fee: When you apply for a personal loan lenders usually do things like check your credit report. To cover this cost and any other administration charges you may be charged a flat application fee by the lender. This will be charged at the start of your loan. Application fees can be as much as $600 so it pays to shop around. This is why you will often seen a big difference between the headline interest rate (the amount of interest you will pay) compared with the comparison rate (the amount of interest plus fees).

Service fee: When you've got the tick of approval and you've refinanced to the new loan, you could also be charged an ongoing monthly fee. However, with many lenders waiving this fee, we would always recommend looking for a new loan free of the monthly fee bite - a $10 monthly fee over 5 years is $600.

Break cost fee: As mentioned earlier in this guide, exit fees can be charged on fixed rate loans, which will be a troublesome fee if you try to pay off your loan early.

3. Look for flexible options

Extra repayments: The best place to put extra money that comes your way is into your personal loan, as the life of your loan will be reduced and you will pay less interest. So when you begin to compare loans, check that this option is available for free.

Personal loan redraw: When a personal loan comes with an extra repayments facility, it will commonly also allow redraws on that extra money you've put towards your loan. While we agree it's a handy option, if it is put to good use like making small upgrades to your home, we should warn you that redrawing on that money will increase the life of your loan and the interest you pay.

Weekly, fortnightly or monthly repayment cycle: If you are given the option of choosing your repayment cycle, always choose the weekly or fortnightly option, as you will pay off an extra month in a year, compared to the monthly option.

4. Get advice from other customers

While a competitive interest rate and low fees is important, don't forget other things like customer service. Reading reviews from customers like you will help you get a sense of whether the lender you're considering ticks the boxes across everything from price to customer service. Mozo has customer reviews from big bank, peer to peer and non bank lenders, you can read reviews or search for a provider directly here.

5. Crunch the numbers

Mozo can help with the number crunching. Our Switch & Save Calculator has been designed specifically for people like you who are looking to refinance. Simply tell us some details of your current loan (lender, how much you want to borrow and your current monthly repayment) and we'll tell you which loans will cost you less, compared to your current personal loan.

Alternatively, simply use the table above to input how much you want to borrow and quickly compare your existing loan with the refinance personal loans available from a wide range of Australian lenders today.