Work out an affordable refinance repayment before you apply

Key points

• A lender’s assessment and your own repayment comfort are related, but they are not the same test.
• Use several months of real income and spending.
• Do not treat a lower repayment as spare spending until the full pay-cycle and irregular-cost check is complete.
• Use actual provider terms and dated figures. Eligibility, rates, limits and fees vary.

A lender’s assessment and your own repayment comfort are related, but they are not the same test. Your plan should leave room for housing, food, utilities, transport and irregular bills, not merely fit on the day the application is submitted.

Start with what you owe now, what the current arrangement costs and what needs to improve. You may care most about total cost, a repayment that fits payday, fewer due dates or a clear finishing date. Write that priority down before looking at another product so the comparison does not shift around the offer in front of you.

Start with the decision you are actually making

Use several months of real income and spending. Add annual and irregular costs, test the repayment after a small rate or expense increase, and decide the highest amount you can sustain without returning to credit for essentials.

Use current statements and provider documents where you can. App balances are useful for a quick snapshot, but payout amounts, pending interest and offer terms can change the amount needed to complete a transfer or refinance. Mark anything that is only an estimate. If a provider gives you a personalised offer, replace the advertised figures in your comparison with the figures in that offer.

Keep cash flow and total cost on separate lines. A change can reduce this month’s scheduled repayment because the debt is spread over longer. That may be a considered choice when the current repayment is not sustainable, but it should not be described as a saving unless the full cost is lower after interest and fees.

A worked example

A proposed refinance repayment is $620 a month, compared with $760 across current debts. The $140 difference looks helpful. If car rego, medical costs and quarterly power bills were missing from the budget, though, the apparent space may disappear in the months they arrive.

The figures in this example are illustrative. They show the method, not a current product or the result you would receive. Run the comparison again with your own balance, term, offer rate, fees and repayment. If the decision involves several debts, include every minimum repayment that will remain after the change.

The useful result is a small set of numbers you can check:

• the amount that will actually move or be paid out
• every upfront and ongoing fee
• the repayment you plan to make, not only the minimum
• the date the promotional rate or loan term ends
• the total amount likely to be repaid
• any debt, limit or regular payment left behind

Test the proposed repayment against real income, essentials, irregular bills and each payday.

Questions to answer before applying or signing

• What did essentials cost over the last three months?
• Which annual bills are coming?
• How would the payment fit each payday?
• What happens if a variable rate rises?

Answer these from documents where possible. When a term is unclear, ask the provider how it applies to your amount and intended settlement date. Keep the answer with the offer. This gives you something concrete to compare and reduces the risk of making a formal application simply to discover basic product rules.

It is also worth checking both the good month and the awkward month. Add car rego, quarterly utilities, school costs, medical spending or other irregular commitments that do not appear in a neat monthly budget. A repayment that works only when none of those costs arrives is unlikely to feel manageable for long.

Check the whole position after the change

A transfer or refinance can affect more than the balance receiving a lower rate. An old account may stay open, a small residual amount may remain, or a separate repayment may still be due. Confirm each intended payout, keep making required payments until closure is confirmed and save the final statements.

Install WeMoney and connect your accounts before comparing refinance or consolidation options. You can see your debts, balances and repayments beside your income and spending, which makes it easier to understand the full financial picture the new repayment would need to fit.

WeMoney uses your connected accounts and credit information to show personalised savings opportunities in the For You section. These may include debt consolidation, credit-card payoff or personal-loan refinancing where they are relevant to your position. Open the app to see your personalised opportunities, then compare any offer with your current debts using the checks in this guide. Potential savings and approval are not guaranteed.

When another option may fit better

Do not treat a lower repayment as spare spending until the full pay-cycle and irregular-cost check is complete.

If the numbers do not improve the outcome you care about, keeping the current arrangement and paying it down may be reasonable. You can also ask current providers about a lower rate, a changed due date or hardship assistance. Those paths do not all produce the same credit, cost or contractual result, so compare what each would actually change.

If you cannot cover essentials or the next required repayment, deal with that pressure first. Contact the provider’s hardship team or speak with a free financial counsellor through the National Debt Helpline. A new application is unlikely to create reliable breathing room when the proposed repayment still does not fit.

A final check

Before committing, read the offer once without the promotional headline. Look only at the amount provided, debts paid, rate, comparison rate where relevant, fees, repayment, term, end date and total amount repayable. Then compare those fields with your current position and the manual plan you could follow without switching.

Keep the option only if it produces an improvement you can explain in plain language. It might lower the estimated total cost by more than the fees, bring the finishing date forward, or turn several difficult due dates into one affordable repayment. If the only change is a smaller repayment created by a much longer term, name that trade-off before deciding.

Sources

• MoneySmart: Personal loans
• MoneySmart: Debt consolidation and refinancing
• OAIC: Information on your credit report

This article provides general information only. It does not take your personal circumstances into account and is not financial, credit or legal advice. Consider your own situation and seek advice from a suitably qualified professional if you need it.