Let’s explore in this post how to refinance a personal loan in Australia, what refinancing is, and what it means to refinance a personal loan.
Refinancing a loan may save you a great deal of money, regardless of whether the original personal loan was for home improvements, paying down credit card debt, or any other purpose.
In the right circumstances, refinancing a personal loan can be an excellent way to pay off your debt and save money smartly.
When you refinance a loan, you use a new loan to pay off your existing debt. Kindly read through for more information.
What Does it Mean to Refinance a Personal Loan?
Refinancing a personal loan is the simple act of taking out new debt to pay off an already existing debt.
The new debt should have lesser fees and more favorable repayment terms to make refinancing a loan worthwhile.
A personal loan refinance allows one to replace their existing loan with a new interest rate.
Refinancing might be a perfect option if interest rates have dropped or are lower than your current rate or when you need to extend your repayment term.
5 Best Places to Refinance Your Personal Loan in Australia
There are several ways to define which personal loans are the best, and the answer will depend on what’s most essential to you and your financial circumstances.
#1. Our Money Market
- Rates from 5.85% (6.47% comparison) for good credit
- Free redraw facility and extra repayments
- No service fees
- Rates from 6.95% (7.78% comparison) for good credit
- 2-minute personal rate estimate
- Establishment fee waived for eligible Mozo customers (conditions apply)
- Rates from 5.35% p.a. (6.14% p.a. comparison rate)
- Loan top-up feature
- No ongoing fees
- Rates from a low 6.99% p.a. (7.62% comparison)
- Borrow between $2,001 up to $75,000
- Loans 1 to 7 years
#5. Now finance
- No fees
- Fixed interest rates starting at 5.95% p.a. (5.95% p.a comparison rate*)
- Borrow from $5,000 to $50,000
How do I Refinance my Personal Loan?
If you decide that refinancing your personal loan is the right option for your present situation, here is how it works:
- Compare personal loan options and select your lender based on professional advice if you need it. Ensure that the new loan can be used for debt consolidation and refinancing.
- Next, apply for a new personal loan. As you would have done before, ensure you meet the loan criteria before applying. You can note here that your loan’s purpose is to refinance or consolidate debt.
- Once you receive the loan, pay off your present loan. Some debt consolidation lenders might offer to arrange this for you, although it is worth confirming if they charge a fee for this service.
- Ensure you Close the old loan account. Get in touch with your first lender and arrange for the account’s closure. Also, confirm there’s no outstanding balance to be safe.
- Ensure you Cancel any automatic payments or direct debits to the first loan and set up the new repayments if you wish to make sure you don’t accidentally miss any.
Refinancing a personal loan could put more funds in your pocket to invest into savings or healthy money habits.
How to Get Lower Interest Rates on Your Personal Loan
A personal loan is a credit instrument to deal with all sorts of financial crises; they do not need any collateral/security, are disbursed quickly, require minimum documentation, etc. Here are some tips to help you secure lower interest rates on personal loans:
#1. Compare the Interest Rates Offered by Many Lenders
If you meet the personal loan criteria of many banks, it is always an excellent idea to visit an online financial institution or marketplace and compare their different offers. This will help you to secure the best deal.
#2. Maintain a Good Credit Score
A score closer to 900 is regarded to be a good score. Having a good credit score increases their ability to secure new credit and helps them get the desired loan amount and with the desired repayment period at reasonable interest rates.
Usually, people with higher credit scores can get a lower personal loan interest rate on their borrowing.
A high credit score shows responsible credit behavior and also higher credit worthiness. You can maintain a good credit score through timely repayment of your debts and dues, maintaining a credit utilization ratio within the 30% limit, maintaining a balanced credit mix, and avoiding simultaneously loan inquiries with several lenders, which increases the number of hard inquiries on one credit report (and this will show you to be credit hungry), etc.
#3. Look out for Special Offers
When applying for this personal loan, always look for special offers like those offered during festive times.
During the festive periods, banks often launch attractive schemes offering lower than usual interest rates which will help you save on the loan repayment expenses in the long term.
#4. Check the Method of Interest Calculation
It is advisable to check the method used by these lenders to calculate the interest payable on a personal loan.
Often, loans may be offered at a very low-interest rate, but one may pay a higher interest at the end of the loan period. Borrowers offer loans either at a flat or a reducing interest rate.
In the case of a flat interest rate, the interest is calculated on the whole loan principal throughout the loan tenure.
In the reducing balance method, the loan interest is only calculated on the outstanding principal.
Therefore, a loan at a reduced interest rate could cost less than a personal loan at a flat rate of interest.
#5. Good Existing Relationship with the Bank
Having a good relationship with a lender may enable you to secure a personal loan at a discounted rate and better terms of service. This is because the lender is aware of your responsible credit behavior, and there is a relatively lower risk than borrowing from a new customer.
#6. Maintaining a Good Repayment Track Record
Try to pay off your loan EMIs and credit card bills in full and in time. This helps you maintain an excellent history of repayment that, in turn, will enable you to negotiate a better rate of interest on personal loans with the borrower.
Can you Refinance a Personal Loan?
Yes, you can refinance a personal loan, and to refinance a personal loan, you will take out a new one to pay off the previous one.
Does Refinancing a Personal Loan Affect Credit Score?
Refinancing personal loans may lead to a drop in your credit scores because of the hard inquiries from the applications and opening of a new credit account. But as time goes on, your scores may recover and increase if you continually make on-time payments on your new loan.
Can I Change my Personal Loan to Another Bank?
To transfer your personal loan to another bank, you will have to provide all the information of your existing personal loan, like the principal amount remaining, rate of interest, tenure completed, etc. The new lender will also ask for your repayment track record for the past 12 months before permitting a balance transfer.
How Many Times Can I Refinance a Personal Loan?
There is no limit to how many times you can refinance a personal loan. However, a lender might enforce a waiting period between when one closes on a loan and refinance to a new one.
As we stated above if you have a personal loan and are weighing whether to refinance it, ensure to compare the pros and cons, including the interest rate and any fees or penalties associated with ending one personal loan and opening another.
Have you refinanced a personal loan before?
Kindly share your experience on personal loan refinancing in the comment section below.
Watch the video below to learn how to refinance a personal loan in Australia:
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