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If your personal loan is no longer working for you, refinancing it is an option. But that sounds a bit complicated, right?
In my experience, the finance industry has a habit of making things sound much more complicated than they are.
Refinancing a personal loan just means switching it to another lender. Or changing your current loan.
This guide explains how a personal loan refinance works and the possible traps to watch out for.
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Personal loan refinancing is possible on most loans. I’ve seen borrowers do it to get a better rate, borrow a bit extra, or extend their loan term.
If you’re refinancing to save money, whether it’s actually worthwhile is a different question.
You’ll need to make sure it'll pay off based on the switching costs. But a lot of the time it is. And if the numbers check out, personal loans refinancing can actually be fairly simple to do.
The process of refinancing your loan goes like this:
Essentially, you get a new loan to repay the old loan. Then you repay the new one.
Ideally on better terms so you’re saving money.
If you’re looking to increase your loan amount or extend the term of your loan, you would just apply to do that with your current lender.
They will assess whether you can still afford the loan based on the changes before approving them.
Refinancing is usually associated with a home loan. But personal loan refinancing can make a lot of sense too, for similar reasons.
I’ve found these are some of the most common ones.
A lot of people refinance their personal loan simply to switch to a lower interest rate. If you still have a few years left on your personal loan, getting a lower interest rate could save you thousands of dollars in interest.
Some personal loans come with a monthly fee. And truth be told, you often don’t get a lot in return. Refinancing your personal loan to one without fees could mean a big saving.
Let’s say you needed to take out a bad credit personal loan initially. But you’ve been making your repayments consistently for more than a year and your score is looking healthier now. You may now be eligible to apply with lenders that were previously off limits.
If you want to borrow more money, you could apply to increase your loan amount. This may be more straightforward than applying for another loan.
Personal loan statistics compiled by Money.com.au show the average new personal loan is just under three years. If reducing your regular repayment amount is a priority, a personal loan refinance to extend the term could be an option. Just bear in mind that doing that this could increase your total interest cost.
Debt consolidation is a specific type of refinancing. It means you can combine other debts you have into a new loan, as well as your personal loan. You could consolidate credit cards, store cards, and buy now, pay later balances.
If your current personal isn’t flexible, you could refinance it to one that is.A big factor here is the ability to make extra repayments without penalty. Being able to do this can reduce your interest costs and mean you’ll be debt-free sooner.
Harmoney | |
---|---|
Personal loan interest rate | 5.76% p.a. to 24.03% p.a. |
Comparison rate* | 6.55% p.a. to 24.98% p.a. |
Plenti | |
Personal loan interest rate | 6.57% p.a. to 24.09% p.a. |
Comparison rate* | 6.57% p.a. to 26.28% p.a. |
NOW Finance | |
Personal loan interest rate | 6.75% p.a. to 26.95% p.a. |
Comparison rate* | 6.75% p.a. to 26.95% p.a. |
Pepper Money | |
Personal loan interest rate | 6.75% p.a. to 26.95% p.a. |
Comparison rate* | 6.75% p.a. to 26.95% p.a. |
ING | |
Personal loan interest rate | 6.89% p.a. to 18.99% p.a. |
Comparison rate* | 7.10% p.a. to 19.23% p.a. |
Our Money Market | |
Personal loan interest rate | 6.57% p.a. to 18.99% p.a. |
Comparison rate* | 7.19% p.a. to 21.78% p.a. |
Moneyplace | |
Personal loan interest rate | 7.24% p.a. to 19.99% p.a. |
Comparison rate* | 7.24% p.a. to 21.49% p.a. |
Liberty Financial | |
Personal loan interest rate | 7.24% p.a. to 19.99% p.a. |
Comparison rate* | 7.24% p.a. to 21.49% p.a. |
Bank of Melbourne | |
Personal loan interest rate | 6.89% p.a. to 19.99% p.a. |
Comparison rate* | 7.59% p.a. to 20.59% p.a. (variable rate): 7.81% p.a. to 20.83% p.a. (fixed rate) |
BankSA | |
Personal loan interest rate | 6.89% p.a. to 19.99% p.a. |
Comparison rate* | 7.59% p.a. to 20.59% p.a. (variable rate): 7.81% p.a. to 20.83% p.a. (fixed rate) |
St.George Bank | |
Personal loan interest rate | 6.89% p.a. to 19.99% p.a. |
Comparison rate* | 7.59% p.a. to 20.59% p.a. (variable rate): 7.81% p.a. to 20.83% p.a. (fixed rate) |
Great Southern Bank | |
Personal loan interest rate | 7.49% p.a. to 19.99% p.a. |
Comparison rate* | 7.74 % p.a. to 20.27% p.a. |
NAB | |
Personal loan interest rate | 6.99% p.a. to 20.49% p.a. |
Comparison rate* | 7.91% p.a. to 21.33% p.a. |
ANZ | |
Personal loan interest rate | 7.49% p.a. to 19.99% p.a. |
Comparison rate* | 8.18% p.a. to 20.58% p.a. |
G&C Mutual Bank | |
Personal loan interest rate | 7.99% p.a. to 16.99% p.a. |
Comparison rate* | 8.20% p.a. to 17.22% p.a. |
Society One | |
Personal loan interest rate | 8.20% p.a. to 24.89% p.a. |
Comparison rate* | 8.27% p.a. to 25.64% p.a. |
Westpac | |
Personal loan interest rate | 7.99% p.a. to 20.49% p.a. |
Comparison rate* | 9.18% p.a. to 21.61% p.a. |
Wisr | |
Personal loan interest rate | 9.04% p.a. to 23.79% p.a. |
Comparison rate* | 9.88% p.a. to 24.56% p.a. |
Commbank | |
Personal loan interest rate | 8.49% p.a. to 20.49% p.a. (fixed); 8.00% p.a. to 20.00% p.a. (variable) |
Comparison rate* | 9.88% p.a. to 21.78% p.a. (fixed); 9.40% p.a. to 21.30% p.a. (variable) |
MoneyMe | |
Personal loan interest rate | 9.20% p.a. to 25.20% p.a. |
Comparison rate* | 10.58% p.a. to 26.58% p.a. |
Latitude Financial | |
Personal loan interest rate | 9.49% p.a. to 29.99% p.a. |
Comparison rate* | 10.93% p.a. to 31.83% p.a |
Fair Go Finance | |
Personal loan interest rate | 21.90% p.a. to 25.90% |
Comparison rate* | 27.54% p.a. to 33.80% p.a. |
Jacaranda Finance | |
Personal loan interest rate | 17.95% p.a. to 24.95% p.a. |
Comparison rate* | 32.40% p.a. to 39.63% p.a. |
Personal loan interest rate | Comparison rate* | |
---|---|---|
Harmoney | 5.76% p.a. to 24.03% p.a. | 6.55% p.a. to 24.98% p.a. |
Plenti | 6.57% p.a. to 24.09% p.a. | 6.57% p.a. to 26.28% p.a. |
NOW Finance | 6.75% p.a. to 26.95% p.a. | 6.75% p.a. to 26.95% p.a. |
Pepper Money | 6.75% p.a. to 26.95% p.a. | 6.75% p.a. to 26.95% p.a. |
ING | 6.89% p.a. to 18.99% p.a. | 7.10% p.a. to 19.23% p.a. |
Our Money Market | 6.57% p.a. to 18.99% p.a. | 7.19% p.a. to 21.78% p.a. |
Moneyplace | 7.24% p.a. to 19.99% p.a. | 7.24% p.a. to 21.49% p.a. |
Liberty Financial | 7.24% p.a. to 19.99% p.a. | 7.24% p.a. to 21.49% p.a. |
Bank of Melbourne | 6.89% p.a. to 19.99% p.a. | 7.59% p.a. to 20.59% p.a. (variable rate): 7.81% p.a. to 20.83% p.a. (fixed rate) |
BankSA | 6.89% p.a. to 19.99% p.a. | 7.59% p.a. to 20.59% p.a. (variable rate): 7.81% p.a. to 20.83% p.a. (fixed rate) |
St.George Bank | 6.89% p.a. to 19.99% p.a. | 7.59% p.a. to 20.59% p.a. (variable rate): 7.81% p.a. to 20.83% p.a. (fixed rate) |
Great Southern Bank | 7.49% p.a. to 19.99% p.a. | 7.74 % p.a. to 20.27% p.a. |
NAB | 6.99% p.a. to 20.49% p.a. | 7.91% p.a. to 21.33% p.a. |
ANZ | 7.49% p.a. to 19.99% p.a. | 8.18% p.a. to 20.58% p.a. |
G&C Mutual Bank | 7.99% p.a. to 16.99% p.a. | 8.20% p.a. to 17.22% p.a. |
Society One | 8.20% p.a. to 24.89% p.a. | 8.27% p.a. to 25.64% p.a. |
Westpac | 7.99% p.a. to 20.49% p.a. | 9.18% p.a. to 21.61% p.a. |
Wisr | 9.04% p.a. to 23.79% p.a. | 9.88% p.a. to 24.56% p.a. |
Commbank | 8.49% p.a. to 20.49% p.a. (fixed); 8.00% p.a. to 20.00% p.a. (variable) | 9.88% p.a. to 21.78% p.a. (fixed); 9.40% p.a. to 21.30% p.a. (variable) |
MoneyMe | 9.20% p.a. to 25.20% p.a. | 10.58% p.a. to 26.58% p.a. |
Latitude Financial | 9.49% p.a. to 29.99% p.a. | 10.93% p.a. to 31.83% p.a |
Fair Go Finance | 21.90% p.a. to 25.90% | 27.54% p.a. to 33.80% p.a. |
Jacaranda Finance | 17.95% p.a. to 24.95% p.a. | 32.40% p.a. to 39.63% p.a. |
Ready to refinance your personal loan?
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GET STARTEDGET STARTEDAs we’ve seen, refinancing a personal loan can be a simple process.
The part that requires a bit of effort is comparing new offers to your existing loan.
And crucially, working out if the new loan will actually work out better once you factor in switching costs.
Here are the steps I’d suggest looking at:
Working out your switching costs is really the crucial step. Here’s what to look for:
Your current lender may charge break/early repayment fees if you end the loan agreement early. These should be outlined in the loan documents issued to you by your lender.
Of course, it’s possible to compare loans for free. But if you use a personal loan broker who charges a fee, make sure to factor this in.
The lender you’re switching to may charge an application fee.
And be sure to take a look at what break fees the new lender may charge.
Just in case you choose to refinance again down the track.
If you have used Money Matchmaker™ to compare refinance personal loan options, you can select the lender of your choice and apply directly.
You will need to supply the same kind of documentation as you would when applying for a new personal loan:
The lender will also check your credit history. It can be helpful to check your own credit score before applying so you know where you stand.
Refinancing a personal loan may not make sense for everyone.
It really comes down to the specifics of the current loan and potential new one, plus your circumstances.
Here are some reasons people might choose not to refinance. At least not right now.
Yes this is usually possible. You could refinance the personal loan to a higher amount, a longer term or potentially to a different loan type (e.g. switching from a variable to a fixed interest rate).
Yes, this is usually possible. The main thing to watch out for is whether the asset being used to secure the existing loan will be eligible to be used as security on the new loan. For example, if you’re refinancing a car loan, the current age of the vehicle could be a factor.
Refinancing an unsecured personal loan is usually more straightforward.
This depends on your circumstances. Here are some factors I'd suggest considering when deciding if now is the best time to refinance:
Applying for new finance could mean your credit score is impacted negatively in the short term (particularly if you have made multiple applications recently).
But if refinancing the personal loan makes your repayments more affordable so you can keep up with them consistently and even pay off the loan sooner, this could help to improve your credit score over time.
Here are the main pros and con to think about with personal loan refinancing:
Refinancing costs can outweigh the savings if you’re not careful
There could be a short term impact on your credit score
Overall, this will come down to your situation. Hopefully this guide has helped you understand what you need to look for and how to calculate your savings and costs.
If you have worked these out, the answer to this question should be easier to land on.
Shopping around for the right loan can save you thousands of dollars in interest and fees.
Personal Loans guides and resources
The great thing about personal loans is they can fund almost anything. They are perfect when you need that bit extra to cover expenses, start a project or reset your finances to get back on track.
*Information about comparison rates Comparison rates are designed to allow borrowers to understand the true cost of a loan by taking into account fees and charges, the loan amount and the term of the loan. The comparison rate is based on an unsecured fixed rate personal loan of $10,000 over 3 years. WARNING: Comparison rates are true only for the examples provided and may not include all fees and charges. Different terms, fees or loan amounts might result in a different comparison rate.