How to Refinance a Personal Loan in Australia
Want to refinance a personal loan in Australia? A plain-English guide to the process, the real costs, debt consolidation traps, and when switching actually saves money.
By Timothy Hirou GaschereauPublished 10 min read
Try it yourself
Refinancing a personal loan means taking out a new loan to pay off your existing one, ideally at a lower rate or on better terms. Done right, it saves real money. Done on autopilot, chasing a lower monthly repayment, it can quietly cost you more.
Here is how to refinance a personal loan in Australia, what it actually costs, and how to know if it is worth it.
🎯 The essential: Refinancing replaces your current personal loan with a new one, usually unsecured, to get a lower rate, lower repayments, or to consolidate debts. It is not always a win: exit fees, a longer term, or a lower credit score can wipe out the saving. Always compare the total cost of the new loan over its full life (using the comparison rate, including all fees), not just the monthly repayment. Consolidating unsecured debt into your mortgage secures it against your home and can cost more over decades. This is general information, not personal advice.
What refinancing a personal loan means
You take out a new personal loan (usually unsecured) and use it to pay off your existing one. The new lender either pays the old lender directly or deposits the funds for you to close the old loan, and you repay the new loan on its own terms. It is a completely new credit contract, not a tweak to the old one, and because there is no property involved, it is generally simpler and faster than refinancing a home or investment loan, often decided within a few business days.
Reasons to refinance, and honest reasons not to
| Good reasons | Watch out for |
|---|---|
| A lower interest rate | Exit fees on the old loan reducing the saving |
| Lower repayments (eyes open) | A longer term meaning more total interest |
| Consolidating several debts | Running the old cards back up afterwards |
| Fixing a variable rate | Break fees if you later exit a fixed loan |
| Escaping high ongoing fees | The new loan's own establishment and monthly fees |
The single biggest trap is stretching the term to lower the monthly repayment. And a firm warning: consolidating unsecured debt into your mortgage secures it against your home and can cost far more over 25 years than clearing it in three, so get advice before going there.
How to refinance, step by step
- Get your payout figure from your current lender (the exact amount to close today), and check the contract for exit or early repayment fees.
- Check your credit score for free; it drives the rate you are offered.
- Compare lenders on the comparison rate, not the headline rate, since it folds in most fees.
- Get a soft-check rate estimate or pre-approval (a soft check does not affect your score).
- Apply with your documents ready; this triggers a hard credit check.
- Let the new lender pay out the old loan, then confirm in writing the old account is closed with a zero balance.
The real costs
- Exit or break fees on your current loan (a flat fee or a percentage of the balance).
- Establishment or application fee on the new loan, often $0 to around $600.
- Ongoing monthly fees of $5 to $15, which is $180 to $540 over a three-year loan.
Run the break-even: total switching cost divided by your monthly saving equals the months until you are ahead. If the loan ends before you reach that point, refinancing costs you money overall, no matter how good the rate looks. Our loan cost calculator helps you compare.
Compare total cost, not the monthly repayment
Say you owe $20,000 at 14% with three years left. Refinancing to 10% helps, or hurts, depending entirely on the term:
The five-year loan has the lowest monthly repayment (about $425 vs $645), which is exactly why it tempts people and exactly why it is the trap. Always compare the total cost over the full loan life, not the monthly figure.
Debt consolidation done safely
Rolling several debts (credit cards, personal loans, buy-now-pay-later) into one loan can genuinely simplify your finances: one repayment, one due date, and possibly a lower average rate. But be honest about the risks:
- The old cards problem. Consolidation only helps if you do not run the cards back up. Close them or cut the limits, or you end up with double the debt.
- Check the comparison rate on the consolidation loan, since some marketed to poor-credit borrowers cost more than the debts they replace.
- Consolidating into your mortgage secures unsecured debt against your home and stretches it over decades, often costing more in total interest. This needs advice first.
See personal loan vs credit card for choosing the right product to consolidate into.
Secured vs unsecured, and your credit score
Most personal loans are unsecured, so rates are higher than secured loans (typically car-backed) because the lender carries more risk. When you refinance, your credit score matters: a higher score means a lower rate offer, while multiple formal applications in a short window can nudge your score down (use soft-check estimates first). If your score has improved since the original loan, refinancing may unlock a materially better rate; if it has dropped, you may be offered worse. Lenders must also assess that the loan is not unsuitable for you under responsible lending rules.
Frequently asked questions
Does refinancing a personal loan hurt my credit score?
+
It can have a small, temporary effect. A formal application triggers a hard credit check that leaves a record, and multiple hard enquiries in a short period can lower your score. Use lenders that offer soft-check rate estimates before you formally apply to minimise the impact.
Can I refinance a personal loan with bad credit?
+
You can apply, but if your score has dropped since your original loan, you may be offered a higher rate, which makes refinancing counterproductive. Some lenders specialise in impaired credit, but their rates can be very high, so check the comparison rate. If you are struggling with repayments, the free National Debt Helpline (1800 007 007) may help more than refinancing.
How long does it take to refinance a personal loan in Australia?
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Many online lenders give a decision within one to three business days once you submit a complete application, and the full process typically takes one to two weeks. Having your documents ready (payslips, bank statements, current loan details) speeds it up.
Is it worth refinancing for a small rate difference?
+
It depends on the numbers. Run the break-even test: add up all the switching fees, divide by your monthly saving, and check the loan will still be running by the time you break even. A small rate cut on a large balance with a long term left can still save meaningfully; on a small balance nearly paid off, it usually will not.
Can I refinance a personal loan into my mortgage?
+
Technically yes, but think hard first. It converts unsecured debt into debt secured against your home, so your home is at risk if you cannot repay, and it usually stretches a short-term debt over a much longer mortgage term, often costing far more total interest even at a lower rate. Get advice from a licensed adviser before doing it.
What is the difference between refinancing and debt consolidation?
+
Refinancing generally means replacing one existing loan with a new one on better terms. Debt consolidation means combining several debts (credit cards, personal loans, buy-now-pay-later) into a single new loan. In practice they often overlap, and the same principles apply: compare total cost, check the comparison rate, and factor in all fees.
Are there fees to refinance a personal loan?
+
Usually yes: a possible early exit or break fee from your current lender, an establishment or application fee on the new loan (often $0 to around $600), and sometimes ongoing monthly fees of $5 to $15. Add them all up, then divide by your monthly saving to find your break-even point.
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Some links above are affiliate links. If you buy through them, Snowball Invest may earn a small commission at no extra cost to you. We only recommend books we'd suggest anyway.
Sources
- ASIC Moneysmart, personal loans
- ASIC Moneysmart, debt consolidation and refinancing
- ASIC Moneysmart, personal loan calculator
- National Debt Helpline (free financial counselling, 1800 007 007)
General information only, not personal financial advice. It does not take your circumstances into account. Consider a licensed adviser or a free financial counsellor before acting, and run your own numbers.
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General information only. This article is educational and does not constitute personal financial advice. It does not account for your circumstances. Consider your own situation and seek advice from a licensed adviser before acting. Read our full disclaimer.
Timothy Hirou Gaschereau
Founder of Snowball Invest, not a financial adviser.
I write about what I'm learning myself, because nobody ever taught us how to take control of our own money. It's a skill, not a mystery, and it's never too late to learn it. The best day to start was yesterday, the second best is today.
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