Refinancing means replacing existing borrowing with a new credit agreement. When several debts are combined into one new loan, this is usually called debt consolidation.
It changes how you repay what you owe. It does not, by itself, reduce the amount you owe or make you debt free. For UK borrowers, the main checks are the total cost, the repayment period and whether the new borrowing puts an asset at risk.
What is the difference between secured and unsecured borrowing?
A secured loan is backed by an asset, often your home. If you do not keep up repayments, that asset could be repossessed. Moving unsecured debts onto a loan secured against your home introduces this risk.
An unsecured personal loan is not secured against a particular asset when you take it out. However, missed payments can affect your credit record, lead to charges and result in court action to recover the debt.
Neither type is automatically cheaper or suitable for a particular borrower. The actual terms matter more than a general comparison of secured and unsecured loans.
Compare the full cost of changing loans
A smaller monthly payment can come from spreading repayments over more years. That can increase the interest paid overall, even where the new interest rate is lower.
Before comparing an offer with your existing borrowing, gather:
- The amount needed to settle each existing debt, including any early repayment charges.
- The new repayment amount and number of payments.
- The total amount repayable under the new agreement.
- Any arrangement, broker, valuation or legal fees that apply.
- Whether the interest rate is fixed or variable, and when it could change.
Check which fees are already included in the figures so you do not count them twice. If a fee is added to the loan, check the interest charged on it too.
Compare the total remaining cost of your existing borrowing with the proposed replacement, using the same debts and accounting for the costs of switching.
Check affordability and the terms actually offered
Use a household budget to assess whether repayments fit alongside essential spending and other commitments. If the rate can change, consider how a higher payment would affect that budget.
An advertised personal-loan rate is not necessarily the rate you will receive. A lender can offer different terms or decline an application.
Where an eligibility checker is available, check whether it uses a soft credit search before entering your details. An indication of your chances of acceptance is different from a confirmed loan offer.
Check which country a loan website serves
A refinancing page found online can be intended for borrowers in another country.
The refinance page linked here belongs to Axo Finans, a commercial loan broker serving the Norwegian market. It combines information about refinancing with loan comparison and application features, and displays borrowing examples in Norwegian kroner.
Those examples are not UK loan quotes. Its references to Norwegian lending rules should not be treated as guidance on UK borrowing, eligibility or consumer protection.
Before sharing personal information with any loan website, check which market it serves, whether it is a lender or intermediary, and who will receive your application.
If existing repayments are already difficult
Speak to your creditors and seek free debt advice before taking on further borrowing. A debt adviser can help you explore options that do not depend on obtaining another loan.
MoneyHelper’s debt advice locator can help you find free support. MoneyNerd does not provide debt advice.
