The ultimate guide to

ReFinancing

ReFi - Take out a new loan to pay off your old debts with one manageable monthly payment

Taking out a debt consolidation loan for yourself or your household can be a great financial move. However, this is not the case for everyone. As with any financial commitment, all options should be researched and considered before a decision is made.

Positives of ReFi

You might save money on interest
By spreading existing debt over a longer loan term your monthly payments can be reduced
Juggling fewer repayments can make your monthly budgeting easier (practically and mentally)
Your credit score may have improved and the products you hold today don’t reflect this
Successfully making your payments on your new loan will boost your credit score
Most debt consolidation lenders will have the money with you in a few days

Potential negatives of ReFi

Whilst it is thankfully becoming increasingly rare, taking out a new loan can potentially come with added fees, like a set-up fee
You may be penalised for repaying your current loan early. This is less likely to be the case on overdraft and credit card debt
Extending your term could mean that you’ll pay more in interest over time.

How debt consolidation works (in general)

When you consolidate debts you’re effectively putting them all into the same financial product and making one single repayment towards them each month. This can feel much more manageable compared to the multiple repayments you were making before. The amount of debt you pay back won’t change when you do this, but the interest and length of your loan term might, as well as your monthly repayment.

Consolidating debt basically involves borrowing one big chunk of money to pay off several smaller chunks of money, or a single debt that may be more expensive than your new financial product. This can be a loan or a credit cards with a balance transfer facility.Beyond the financial reasons, managing several debts that require different repayment dates, with varying interest rates, can feel overwhelming. Some people choose to consolidate what they owe for simplicity’s sake, and/or because the maths works out in their favour.

According to The Money Charity in May 2023 the average UK household has £65,513 of debt. Of which, £7,982 is ‘unsecured’ debt – typically credit card, overdraft and unsecured loan balances. Let’s round that to £8,000 and imagine it breaks down as: Credit Card: £5,000 – APR 30.4% Overdraft: £1,000 – APR 39% Outstanding Loan balance: £2,000 – APR 17.9%

Your monthly interest now

Your monthly interest with a ReFi loan

Misconceptions of refinancing

That it’s free. Upfront fees can be involved when taking out a consolidation loan.

That it involves entering into a debt management plan, IVA, or similar debt scheme. Adverts surfaced in some search engine results can imply that it does - which is why it’s so crucial to do your research.

That it always leads to savings. Be sure to do the maths and understand how longer loan terms may mean paying less per month now but more over the entire term.

Work out the true cost of borrowing

This MoneyHelper calculator will help you to figure out whether debt consolidation is a smart financial option for you.

There are other ways in which debt can be ReFi’d beyond loans

Credit Cards

If you have numerous credit card balances then you may be able to consolidate them -with a balance transfer- into one monthly repayment. Provided this new credit card has a lower interest rate than your existing credit card, then your overall repayment could work out as more affordable than it would have been if you’d have continued repaying each credit card separately.

Some credit cards advertise promotional APR rates for different periods of time, which could result in your paying more in the long run, so be sure to read the fine print before signing anything. You also need to factor in that balance transfers usually bring about a fee; this is sometimes worked out as a percentage of the amount of money being moved.

Home equity loans and lines of credit

If you have equity in your home, or another property you own then you might be able to use this as collateral against a home equity loan (or line of credit) to repay your debts. If you’re going to consider this option then you need to be especially confident that you’ll be able to afford any of these new repayments. The risk if you can’t is that your home could be repossessed.

It’s also worth noting that home equity loans frequently cost a fair bit in fees.

ReFi is a safe and secure way for your lender to find you the best new loan to pay off your debts. Your lender may ask you to use our easy to navigate site as a condition of making a debt consolidation offer. If your lender has asked you to use ReFi as part of your application process and you have any questions on how it works for you, please contact our friendly team, we will be happy to help.

Debts that ReFi can clear directly include:

Credit Cards

Overdrafts

Unsecured Loans

Store Cards

Car Loans

Ultimately...

Refinancing can work out really well for some, but it certainly isn’t the debt management solution for everyone. It’s crucial to understand all of your options before taking out any form of credit.

We hope you’ve found this article useful.

The content here is designed to educate and get you thinking. What you find here isn’t intended as financial, legal or investment advice. For bespoke advice around your specific situation we’d suggest speaking to a qualified finance professional.