Using a Personal Loans Calculator to Work out Whether It's Worth Refinancing or Not


  • Author Laura Ginn
  • Published January 17, 2014
  • Word count 746

If your bank is charging you a high rate of interest on your personal loan, you may want to consider refinancing. There are plenty of lenders around offering attractive deals, so it could be possible to save money by refinancing your personal loan.

After all, if you can reduce the interest rate you pay on your debts, it's possible to reduce your monthly repayments. Aside from being easier on the household budget, you could also potentially reduce the amount of interest you pay on your personal loan overall.

Before you submit an application with a new lender, take the time to enter your figures into a good personal loans calculator. Work out what your potential new repayments will be and see how much lower they're likely to be.

It's also important to work out if any other fees may apply that could increase your costs overall. The new lender may charge product fees and monthly account fees on your new personal loan. Your existing lender may also charge you early repayment penalties for paying out your debt sooner than the agreed loan term.

Working Out How Much You Could Save

Take some time to enter your figures into a good personal loans calculator. The idea is to get a grasp on exactly what your current loan is costing you.

If you've done your homework, you should already have found a few different lenders offering good deals on low interest personal loans. Change the interest rate you entered into the personal loans calculator and see what it does to your monthly repayments.

Some calculators will also show you the total amount of interest you'll pay over the total loan term. At first glance it may seem as though the reduced monthly repayments plus the lower interest charges overall will make refinancing over to a new lender all worthwhile.

However, there's often a lot more to consider. If you don't do the sums accurately, you could end up paying more than you expect.

Early Repayment Penalty Fees

Before you rush to submit your loan application with the new lender, you also need to take into account any fees your existing lender may charge you for leaving. After all, some banks will charge an early repayment penalty for paying off your loan sooner than the agreed loan term.

In some cases, the penalty charged can be tiered depending on the age of the loan. For example, you may pay a fee of 2% of your loan amount for refinancing your personal loan in the first 12 months of the loan. The penalty may reduce to 1% of your loan amount if you refinance your debt in the third year.

If you still have a copy of your personal loan contract, you'll see the early repayment penalty listed in the documentation somewhere. If you don't have a copy, you can always call your bank and ask them for a current pay out figure.

Case Study

There are times when refinancing your personal loan over to a cheaper interest rate may not save you money at all. For the purpose of this example, we'll assume you have a personal loan of £7,500 and you're paying 12.75% interest over a 5 year term. Your monthly repayments will be £169.69.

By comparison, you find a new lender offering you an interest rate of 8.5% to refinance your personal loan over with them. Your monthly repayments will drop to just £157.51.

At first glance, your repayments will reduce by £12.18 per month and you benefit from a much lower interest rate. Yet the new lender has a £250 product fee for applying for your personal loan. They also charge £5 per month for an account fee.

There's also the factor of the early repayment penalty from your existing lender. They're charging you a 2% fee, which is £150.

Existing Loan

New Loan

Loan Balance



Loan Term

5 years

5 years

Interest Rate



Monthly Repayment



Early Repayment Fee



Product Fee



Monthly Account Fee


£5 (total £300)

Total Interest Paid



The table above shows you could potentially save £730.55 in interest charges by refinancing over to the new lender. However, you'll also end up paying a total of £700 in product fees, monthly fees and early repayment fees just to switch over.

In order to really find out whether refinancing over to a new lender is a good idea, take the time to input your numbers into a good personal loans calculator. Add up all the costs associated with making the switch and see for yourself whether you really end up in front or not.

Lee Masterson knows that there are some great tools available that can help you manage your finances more effectively. Visit to learn more about how to find an affordable loan that suits your needs.

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