If you have a personal loan you may be thinking about refinancing. While your reasons may vary, the main objective is clear: you want to reduce your overall costs.
Sometimes a lower interest rate may appear to save you money over the lifetime of your loan, but you haven’t calculated the cost of application fees or early repayments fees, which may cancel out the benefits of the lower interest rate you’ve found.
It can get a bit tricky, but with a little bit of research, you’ll have a clear picture of what your refinancing costs will be and if refinancing is right for your situation.
Keep reading for a crash course on what to look out for when refinancing your personal loan.
When to refinance
There’s a few reasons you may be thinking about refinancing:
You want to lower your interest rate
Lowering your interest rate is one of the most common reasons to refinance your personal loan. Make sure to include the cost of any additional fees and charges in addition to the new interest rate when deciding which loan is best for you.
You need to consolidate your debt
If you have several other debts such as credit card debt or other personal loans, refinancing your current loan to combine your debts can help to lower your overall costs.
You have home improvements to do
If you’ve got home improvement costs in your future such as repairs or a remodel, loan refinancing may be a great way to finance these costs and lower your repayments in the process.
You’re about to make some major purchases
Major purchases like a car, medical procedure or perhaps a wedding may be another reason to refinance your personal loan to get a better rate and cover the cost of these upcoming expenses.
Cost of refinancing
Costs will vary, but you can expect to potentially pay application fees to apply for your new loan along with early repayment fees to close out your old loan. You’ll also be responsible for any ongoing fees for your new loan so be sure to include these in your calculations before refinancing.
Refinancing your personal loan
Once you’ve decided to refinance your personal loan, you’ll need to:
Do your homework
You’ll want to do your homework to ensure that refinancing your personal loan is the best option. Make sure to include break and exit fees for your current loan, startup fees for your new loan when comparing the costs in addition to comparing interest rates and any other charges such as early repayment penalties. Check out this handy personal loan calculator for help.
Apply for your new loan
Once you’ve decided on how much money you need, apply for the loan that provides you with the most savings over the long term.
Pay out your current loan with your new loan funds
This part will depend on your particular situation. If you’re consolidating your debts, your lender may be able to arranger this, otherwise you’ll need to use your new loan to pay off the balance of your old loan and close it out.
Check that your old loan has been closed out
Once you’ve paid out your old loan, double check that balance has been cleared and your account has been officially closed.
Research is your friend
Whether you’re refinancing to lower your interest rate or to make room for some additional expenses, doing your research is key to ensure you’re getting the best loan for your personal situation. You don’t want to refinance your loan only to find out that you’re actually paying more over the long term because of an overlooked fee or charge. Make sure to conduct a thorough investigation before refinancing and you can enjoy the benefits of reduced fees and rates for years to come.
If you want to refinance your personal loan and are looking for some expert advice, get in touch with our friendly team today at 1300 368 322. We’ve helped thousands of Australians find financial freedom, and we can help you too.