What is a debt consolidation personal loan?

If you’re paying off multiple credit cards, car loans, personal loans, or a combination of these, the chances are you’re paying more in fees and interest than you need to. This is where debt consolidation using a personal loan can be handy. By rolling all your existing expenses into one loan, you can simplify your financial situation and potentially reduce how much you’ll pay in account keeping fees and interest costs.  

Why use a personal loan for debt consolidation? 

Using a personal loan to consolidate debts can be a good strategy for borrowers who feel their financial situation is getting out of hand. With the right debt consolidation personal loan, it’s possible to pay less interest and fees on your debt, relieving some of your financial pressure.  

Debt consolidation can help you to better manage your debts and avoid defaulting on a repayment. With just the one repayment to think about, calculating your incoming and outgoing expenses should be much simpler. 

Using a personal loan for debt consolidation could also let you take advantage of features that your current loans may not offer, such as making unlimited extra repayments. Changing your repayment frequency such as switching to weekly or fortnightly payments from monthly payments can help you reduce the amount you pay in interest costs on your loan as interest is usually charged daily. So paying more frequently can help you reduce those charges.

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8.50%

Fixed

9.36%

Wisr

$947

36 months

3 years

3.61

/ 5
More details

5.75%

Variable up to 9.99%

6.47%

Symple Loans

$909

36 months

1 year to 7 years

4.33

/ 5
More details

9.99%

Fixed

11.22%

Latitude Financial Services

$968

36 months

2 years to 7 years

3.25

/ 5
More details

12.69%

Fixed

13.56%

NAB

$1006

36 months

1 year to 7 years

3.05

/ 5
More details

12.45%

Fixed

13.32%

ANZ

$1003

36 months

1 year to 7 years

3.01

/ 5
More details

12.69%

Variable

13.56%

NAB

$1006

36 months

1 year to 7 years

3.12

/ 5
More details

15.99%

Variable

16.84%

ANZ

$1055

36 months

1 year to 7 years

2.64

/ 5
More details

4.94%

Variable

7.41%

Heritage Bank

$898

36 months

1 year to 10 years

4.56

/ 5
More details

5.60%

Variable

5.70%

Family First Credit Union

$907

36 months

0 year to 10 years

4.49

/ 5
More details

5.85%

Variable

6.70%

Holiday Coast Credit Union

$911

36 months

0 year to 10 years

4.20

/ 5
More details

6.49%

Fixed up to 8.79%

6.84%*

Plenti

$919

36 months

3 years to 5 years

4.25

/ 5
More details

7.79%

Fixed up to 10.49%

8.35%*

Plenti

$937

36 months

3 years to 5 years

3.96

/ 5
More details

8.00%

Fixed

8.21%

Our Money Market

$940

36 months

1 year to 7 years

3.77

/ 5
More details

9.00%

Variable

9.28%

Holiday Coast Credit Union

$954

36 months

0 year to 5 years

3.83

/ 5
More details

6.99%

Fixed up to 29.99%

7.69%

Harmoney

$926

36 months

3 years

3.95

/ 5
More details

10.89%

Variable

11.15%

CUA

$981

36 months

0.08333333333333333 year to 7 years

3.45

/ 5
More details

10.99%

Fixed

12.21%

Latitude Financial Services

$982

36 months

2 years to 7 years

3.08

/ 5
More details

11.50%

Fixed

12.38%

Wisr

$989

36 months

3 years

3.09

/ 5
More details

12.99%

Fixed

14.14%

Westpac

$1011

36 months

1 year to 7 years

2.81

/ 5
More details

12.99%

Fixed up to 28.99%

14.20%

Latitude Financial Services

$1011

36 months

2 years to 7 years

2.86

/ 5
More details

13.99%

Fixed up to 29.99%

15.19%

Latitude Financial Services

$1025

36 months

2 years to 7 years

2.69

/ 5
More details

14.00%

Variable

14.30%

Holiday Coast Credit Union

$1025

36 months

0 year to 5 years

2.96

/ 5
More details

Learn more about personal loans

What are the pros and cons of debt consolidation personal loans?

As with any financial product, there are pros and cons to using it. You need to consider all of them in deciding whether a debt consolidation personal loan is best for you financial situation. 

 

  • Easy all-in-one monthly repayment
  • Budgeting is easier with one regular payment
  • Fewer account keeping fees
  • Potentially lower interest rate
  • May not be the cheapest option available
  • May be difficult to get loan approval if you’ve already defaulted on payments
  • Paying a debt over a longer period can mean paying more in interest
  • If you get access to more credit in your consolidated loan, you could end up spending and owing more
  • Avoid refinancers who promise getting you out of debt, no matter how much you owe

How can you consolidate your debts using a personal loan?

The best way to consolidate your debts will depend on your situation. For example, if you have multiple credit card debts and no existing personal loans, then you could apply for a personal loan and once it’s been approved, use the cash to pay off those credit card debts.  

However, if you already have a personal loan, and also owe money on a credit card and a car loan, you may be able to refinance your current personal loan to cover the other debts, and continue to enjoy the personal loan’s interest rate. 

But if you have an existing personal loan or car loan on a fixed interest rate, you may have to pay a break fee to consolidate that debt. Check with your lender to find out how much you may need to pay. If you’re not sure of the best debt consolidation option for you, it may be worth getting some professional guidance from a financial counsellor or broker.  

Example: Bella rolls her debts into one

Bella has two credit cards, each with a $2000 debt owing and monthly repayments due at separate times. They both have interest rates over 20 per cent. She also has $5000 left on her car loan that she is paying off on a monthly basis with an interest rate of around 8 per cent.  

She makes a total of three separate repayments each month, plus pays $250 in annual fees for the cards and car loan. While she can afford all of these repayments, Bella finds it hard to keep track of due dates (making a default more likely) and how much she has paid off on each credit facility. 

Bella has her sights set on a big overseas holiday, but wants to be debt-free before she starts to save. She decides that the easiest way to do this is to roll all her debts into a personal loan so she can make one monthly repayment and control the time it takes to repay the debt. She opts for a personal loan with an interest rate of around 10 per cent – half of what she’s currently paying on her credit cards. 

Once she is approved for the personal loan, Bella uses the cash to pay off the credit cards, effectively rolling them into the one loan. As her car loan doesn’t allow unlimited extra repayments, Bella has to pay a small fee to pay out the loan and roll it into her new personal loan. Bella calculates that the money she can save on annual fees and by paying her car off sooner will make this upfront cost worth it in the long run. 

Now, with all her debts rolled into one, Bella knows that she can be debt-free by this time next year, and start saving up for her dream holiday. 

Can I get a debt consolidation personal loan with bad credit?

Consolidating debt using a personal loan may not be the most ideal solution for borrowers who have a bad credit rating, such as when you have previously defaulted on repayments. If you’re in this situation, it is unlikely that your application for a low-rate personal loan would be approved. Any loan rejection could further damage your credit score. 

If you are struggling to afford your loans and can’t consolidate your debts, consider contacting your creditors immediately to discuss a financial hardship plan. For borrowers already in a dire financial situation, it may be wise to seek financial counselling to figure out an appropriate debt consolidation plan. A professional financial counsellor can also help you enter a debt agreement, which is a form of bankruptcy. 

For more information on contacting a financial counsellor, visit the ASIC Money Smart website or call the National Debt Helpline on 1800 007 007. 

Frequently asked questions

Can you refinance a $5000 personal loan?

Many personal loans, much like home loans, can be refinanced. This is where you replace your current personal loan with another personal loan, often from another lender and at a lower interest rate. Switching personal loans may let you enjoy more affordable repayments, or useful features and benefits.

If you have a $5000 personal loan as well as other debts, you may be able to use a debt consolidations personal loan to combine these debts into one, potentially saving you money and simplifying your repayments.

What are the pros and cons of debt consolidation?

In some instances, debt consolidation can help borrowers reduce their repayments or simplify them. For example, someone might take out a $7,000 personal loan at an interest rate of 8 per cent so they can repay a (different) $4,000 personal loan at 10 per cent and a $3,000 credit card loan at 15 per cent.

However, debt consolidation can backfire if the borrower spends the extra money instead of using it to repay the new loan.

What is a personal loan?

A personal loan sits somewhere between a home loan and a credit card loan. Unlike with a credit card, you need to sign a formal contract to access a personal loan – however, the process is easier and faster than taking out a mortgage.

Loan sizes usually range from several hundred dollars to tens of thousands of dollars, while loan terms usually run from one to five years. Personal loans are generally used to consolidate debts, pay emergency bills or fund one-off expenses like holidays.

Can I repay a $3000 personal loan early?

If you receive a financial windfall (e.g. tax refund, inheritance, bonus), using some of this money to pay extra onto your personal loan or medium amount loan could bring you benefits, such as reducing the total interest you’re charged on your loan, or clearing your debt ahead of schedule.

Check your loan’s terms and conditions before putting extra onto your loan, as some lenders charge fees for making extra repayments, or early exit fees for clearing your debt ahead of the agreed term.

What is a bad credit personal loan?

A bad credit personal loan is a personal loan designed for somebody with a bad credit history. They have higher interest rates than regular personal loans and are also harder to access.

Should I get a fixed or variable personal loan?

Fixed personal loans keep your interest rate the same for the full loan term, while interest rates on variable personal loans may be raised or lowered during your loan term.

A fixed rate personal loan keeps your repayments consistent, which can help keep your budgeting consistent, without worrying about ending up out of pocket if your rates were to rise. However, on a fixed loan you’ll also potentially miss out on more affordable repayments if variable rates were to fall.

How can I get a $3000 loan approved?

Personal loans and medium amount loans from responsible lenders don’t have guaranteed approval, as the lender will want to check that you can afford the loan repayments on your current income without ending up in financial hardship.

Having a good credit score can increase the likelihood of your personal loan application being approved. Bad credit borrowers who opt for a medium amount loan with no credit checks may need to prove they can afford the repayments on their current income (Centrelink payments may not count – so you should check with the lender prior to making an application).

How much can you borrow with a bad credit personal loan?

Borrowers who take out bad credit personal loans don’t just pay higher interest rates than on regular personal loans – they also get loaned less money. Each lender has its own policies, but you’ll find it hard to get approved for a bad credit personal loan above $50,000.

What is the average interest rate on personal loans for single parents?

Like other types of personal loans, the average interest rate for personal loans for single parents changes regularly, as lenders add, remove, and vary their loan offers. The interest rate you’ll receive may depend on a range of different factors, including your loan amount, loan term, security, income, and credit score.

Can I get a bad credit personal loan with a guarantor?

Selected lenders will consider personal loan application from a borrower with bad credit if the borrower has a family member with good credit willing to guarantee the loan (a guarantor).

If the borrower fails to pay back their personal loan, it will be their guarantor’s responsibility to cover the costs.

Can I get guaranteed approval for a bad credit personal loan?

Few, if any, lenders would be willing to give guaranteed approval for a bad credit personal loan. Borrowers with bad credit histories can have more complicated financial circumstances than other borrowers, so lenders will want time to study your application. 

It’s all about risk. When someone applies for a personal loan, the lender evaluates how likely that borrower would be to repay the money. Lenders are more willing to give personal loans to borrowers with good credit than bad credit, because there’s a higher likelihood that the personal loan will be repaid. 

So a borrower with good credit is more likely to have a loan approved and to get that approval faster, while a borrower with bad credit is less likely to have a loan approved and to get that approval slower.

How long does it take to get a student personal loan?

Completing an online personal loan application can often take anywhere from 10 minutes to 1 hour. Depending on your lender, processing your personal loan application may take anywhere between 1 and 24 hours. If your personal loan application is approved, you may receive the money in your bank account the following business day, or even the same day, in some cases.

Are there alternatives to $2000 loans?

If you need to borrow $2000 or less, alternatives to getting a personal loan or payday loan include using a credit card or the redraw facility.

Before you borrow $2000 on a credit card, remember that interest will continue being charged on what you owe until you clear your credit card balance. To minimise your interest, consider prioritising paying off your credit card.

Before you draw down $2000 in extra repayments from your home, car or personal loan using a redraw facility, note that fees and charges may apply, and drawing money from your loan may mean your loan will take longer to repay, costing you more in total interest.

Can you pay off a quick loan early?

Many lenders will allow you to make extra repayments onto a quick personal loan when you can afford them, or even exit the loan early, which can help reduce the total interest you are charged. Be sure to check your quick loan’s terms and conditions, as some lenders charge early exit fees for paying off a loan ahead of schedule.

Can I get an easy/instant personal loan?

Some lenders are able to approve applications over the internet and within minutes. However, there is a catch. People who take out easy/instant loans generally pay higher interest rates and are restricted to lower amounts than people who follow a traditional borrowing process.

How do I find out my credit rating/score?

Credit reporting bodies like Equifax, Dun & Bradstreet, Experian and the Tasmanian Collection Service will give you a free credit report once a year. You can also get a free report if you’ve been refused credit in the past 90 days.

Credit reporting bodies have up to 10 days to provide reports. If you want to access your report quickly, you’ll probably have to pay.

What is credit history?

Your credit history covers everything to do with applying for loans. It includes the number of loans you’ve applied for, the amounts you’ve borrowed and your record of meeting repayment schedules.

How do I know if I've got a bad credit history?

You can find out what your credit history is like by accessing what’s known as your credit rating or credit score.

What causes bad credit history?

Bad credit history is caused by filing for bankruptcy, defaulting on your debts, falling behind on your repayments and having loan applications rejected. Lenders are wary of borrowers who demonstrate this sort of behaviour, because it suggests they might struggle to repay future loans.

How are personal loans regulated?

Personal lenders are regulated by ASIC (the Australian Securities & Investments Commission) and must follow responsible lending rules. That means they can’t lend money without making “reasonable inquiries” about a borrower’s financial situation and ensuring the loan is “not unsuitable” for them.