If you’re juggling a home loan, a car loan and a couple of credit cards, combining them into one loan can sound appealing. It can help, but it isn’t free money, and it doesn’t suit everyone.
How it works
When you refinance, you borrow extra against your home and use it to pay out your other debts. You’re left with one loan and one repayment, at a home loan interest rate.
The potential benefits
- Lower monthly repayments. Home loan rates are generally lower than credit card and personal loan rates, and the term is longer.
- Simpler budgeting. One repayment instead of several.
- Breathing room. Lower outgoings can ease pressure on a tight budget.
The trade-offs
- You may pay more interest overall. A car loan paid over five years becomes a debt paid over 25 or 30. Even at a lower rate, the total interest can be higher.
- Your home secures the debt. Unsecured debts become secured against your property.
- Costs to switch. There may be discharge fees, application fees, break costs on fixed loans, and Lenders Mortgage Insurance if you borrow more than 80% of your home’s value.
- The habit risk. If the cards are run up again, you can end up worse off than before.
How to make it work
- Keep paying what you were paying before. Putting the freed-up money into the loan as extra repayments clears the consolidated debt faster and cuts the interest.
- Ask about splitting the consolidated amount into its own loan portion with a shorter term.
- Close or reduce the limits on the cards you’ve paid out.
When to get help first
If you’re already behind on repayments or struggling to keep up, speak to your lender’s hardship team, or call the free National Debt Helpline on 1800 007 007, before taking on new credit.
Is it right for you?
We’ll show you the numbers both ways, including the total cost over time, so you can decide with clear eyes. If consolidating isn’t in your interest, we’ll tell you. Book a free 15-minute chat.
This article is general information only and doesn’t take your personal circumstances into account.