This article is for general information and guidance only. It is not financial advice and should not be relied on as a personal recommendation. If you are unsure whether a financial product is right for you, you should seek independent financial advice.
It is possible to refinance a secured loan. This means taking out a new loan to replace your existing secured loan. It could help you change your monthly payments, adjust your loan term or borrow additional funds if needed.
In some cases, refinancing a secured loan could help you better manage your finances. However, it’s not necessarily the right move for everyone. There are a few factors to think about, from interest rates to fees and how it may affect your credit score.
In this guide, we’ll cover:
- What it means to refinance a secured loan
- How to refinance your loan step by step
- How refinancing could affect your credit score
- The factors to consider
What does it mean to refinance a secured loan?
Refinancing a secured loan means replacing your current loan agreement with a new one. Once approved, your new loan is used to pay off your existing loan. From there, you’ll make repayments under the new terms.
The new loan doesn’t necessarily have to be another secured loan. If you meet a lender’s eligibility criteria and the amount you need to borrow falls within their lending limits, you may also be able to use an unsecured loan to repay your existing secured loan.
People choose to refinance for different reasons. You may want:
- A better interest rate
- Lower monthly repayments
- To change how much time you repay the loan over
It’s important to remember that refinancing isn’t right for everyone. What works for one person may not work for another. Taking time to understand your options could help you make the appropriate decision for you. Refinancing could also increase the overall cost and length of term when repaying the debt.
How to refinance a secured loan
If you’re wondering how to refinance your secured loan, here’s a step-by-step guide to help you get started.
1. Check your current secured loan details
Start by reviewing your existing agreement. Look at your interest rate, remaining balance and how long you have left to repay.
Then, request a settlement figure from your current lender. This shows how much it would cost to pay off your loan in full, including any early repayment charges.
2. Think about your goals
Before applying, ask yourself what you want to achieve.
- Do you want lower monthly payments?
- Do you want to pay your loan off sooner?
- Are you looking to borrow additional funds for something like home improvements?
Understanding your goals will help you choose a suitable refinance loan option.
3. Compare your options
It’s worth shopping around. Different lenders may offer different rates, terms and conditions.
Look at:
- Interest rates
- Loan terms
- Monthly repayment amounts
- Any fees or charges
Taking time to compare could help you find a loan that better suits your circumstances.
4. Check your eligibility
It may be worth checking your eligibility before applying. Many lenders let you do this without affecting your credit score.
This step could give you a clearer idea of what you may be able to borrow and the terms available to you.
5. Apply for your new loan
If you’re happy with your chosen option, you can submit your application. Lenders will usually carry out a credit check at this stage. This will appear on your credit report.
6. Pay off your existing loan
If your application is approved, your new loan will be used to pay off your current secured loan. From this point, you’ll make repayments under your new loan agreement.
Will refinancing affect my credit score?
Yes, refinancing could have an impact on your credit score. However, this impact isn’t always negative.
When you apply for a new loan, a credit check will be recorded on your file. This may cause a small, temporary dip in your credit score. However, if you manage your new loan well and make payments on time, your credit score could improve over time.
Things you may want to consider:
- Multiple applications in a short space of time could lower your credit score
- Missing repayments could have a negative impact
- Making payments on time could help build your credit score
If you’re unsure where you stand, checking your credit report before applying could be a helpful step.
Warning: Late repayment can cause you serious money problems. For help, go to moneyhelper.org.uk.
Factors you may want to consider before refinancing a loan
Like any financial decision, it’s important to consider whether refinancing is right for you.
- Secure a lower rate: You may be able to secure a lower interest rate depending on your current circumstances.
- Manageable repayments: Your monthly repayments could become more manageable by spreading the cost. However, you might have to pay back more in the long term.
- Flexible loan terms: You could adjust your loan term to better suit your monthly budget.
- Borrow additional funds: You may be able to increase your borrowing amount if required, subject to status.
- Early repayment fees: Early repayment charges may apply to settle your current secured loan early.
- Credit file impact: A hard credit check will be carried out when you apply, which impacts your score.
- Higher overall cost: Extending your loan term could mean paying more interest in total over the life of the loan.
- Approval not guaranteed: Final approval depends entirely on your personal credit history and affordability assessment.
Is refinancing a secured loan right for you?
Refinancing a secured loan could be helpful if your current loan agreement no longer suits your situation. For example, your financial circumstances may have changed or you may be looking to reduce your monthly outgoings.
However, refinancing isn’t always the best choice. It’s important to think about both the short term and long term impact on your finances. If you’re unsure, it might be worth seeking advice from a financial adviser.
Remember that taking out a new loan is a major financial decision. If you’re worried about your debt, you can get free impartial advice from organisations such as MoneyHelper, StepChange and National Debtline.
Refinancing a secured loan with Evolution Money
At Evolution Money, we aim to make refinancing a loan as clear and straightforward as possible. If you’re a homeowner, we may be able to offer you secured loan options that could support your plans, whether that’s consolidating borrowing or funding improvements to your home.
You could start by checking your eligibility. This won’t affect your credit score and may give you an idea of what’s available to you.
If you’re still unsure, exploring our Help & Advice section could help you feel more confident about your next step.
Representative Example: For a typical loan of £18,900 over 180 months with a variable interest rate of 18.72% per annum, your monthly repayments would be £335.99 for 179 months and then a final payment of £335.79. This includes a Product Fee of £1890.00 (10% of the loan amount) and a Lending Fee* of £763.00, bringing the total repayable amount to £60,478.00. Annual Interest Rates range between 8.6% to 27.87% (variable). Maximum 50.00% APRC. *Lending Fee varies by country: England & Wales £763, Scotland £1,051, Northern Ireland: £1,736.
All loans are subject to status and eligibility. Available to UK homeowners aged 21 or over. Terms and conditions apply. Not all applicants will be accepted.
Don’t rush into securing a loan against your home. Falling behind on mortgage or secured loan repayments may put your home at risk of repossession.
Representative 21.82% APRC (Variable)
For a typical loan of £18,900 over 180 months with a variable interest rate of 18.72% per annum, your monthly repayments would be £335.99 for 179 months and then a final payment of £335.79. This includes a Product Fee of £1890.00 (10% of the loan amount) and a Lending Fee* of £763.00, bringing the total repayable amount to £60,478.00. Annual Interest Rates range between 8.6% to 27.87% (variable). Maximum 50.00% APRC. *Lending Fee varies by country: England & Wales £763, Scotland £1,051, Northern Ireland: £1,736.
Think carefully before securing debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other loan secured against it. If you are thinking of consolidating existing borrowing, you should be aware that you may be extending the terms of the debt and increasing the total amount you repay.
