Refinancing a cash loan can be quick and easy to do if you have made all of your repayments on time and your financial capacity has remained steady.
But how do you know if you should refinance your cash loan? Well, it depends on what you are trying to achieve.
You have to do some careful calculations to work out if the benefits will actually outweigh the costs of setting up a new loan.
Because of the fees involved, refinancing a short-term cash loan is something that should only be done if absolutely necessary.
In this article, we will cover the step-by-step process of personal loan refinancing, including how your past history helps you.
What Does Refinancing a Personal Loan Mean?
Personal loan refinancing is when you replace your existing loan with a new one.
You are not simply transferring your debt. A refinancing agreement requires you to officially close out the existing cash loan contract and open a brand-new facility.
The funds from the new loan are used to completely clear the outstanding balance of the old one, resetting your repayment timeline and terms.
The Process of Refinancing with Gusto Cash
If you choose to refinance internally with Gusto Cash, you will go through our standard application process.
Because a refinance establishes a completely new credit contract, responsible lending laws require a formal reassessment.
To complete an internal refinance, you will:
1. Complete the Application Form
You will submit a fresh application through our portal to update your current employment status and financial details.
2. Submit fresh bank statements
You will be required to provide your most recent 90 days of bank statements so our team can evaluate your current household budget.
3. We complete a full loan assessment
After we check your statements we will then conduct a credit check, and complete a full loan assessment.
4. Your past repayment history will be considered
This is your biggest advantage! We look closely at your past relationship with us.
If you have consistently made your repayments on time and avoided dishonours, this positive history will be factored into your assessment.
You may be able to access a higher credit limit than your first loan with Gusto Cash if you have sufficient capacity to meet the larger repayments.
Should You Refinance
When you apply for a refinance, your requirements and objectives will dictate whether the process makes financial sense.
Case 1: Increasing your total loan size
If you are refinancing to access additional funds before you have paid down most of your existing loan, it may only be worthwhile if you are raising your credit limit.
For example, if your original loan was $2,500 and you have only paid off $1,000 of the principal balance then the net proceds o borrowing $2,500 again will not be worth the fees.
- Current principal – $1,500
- Refinance Establishment Fee – $400
- Net Cash Disbursement – $600
This is scenario is clearly not worth the fees involved.
Whereas if you were to increase your total loan to $4,000 then your establishment fee would be in proportion to your original loan.
- Current principal – $1,500
- Refinance Establishment Fee – $400
- Net Cash Disbursement – $2,100
The utility of securing the extra funds to solve an immediate problem may justify the cost involved in other circumstances.
But on a financial basis a larger disbursement would generally make the refinance more worthwhile vs the cost involved.
Case 2: Top to your original loan amount
If you have paid off more of the principal compared to our previous example you may be able to acces sufficient cash for the refinance to be worthwhile.
If we use a similar example with an original loan of $2,500, but you have paid off $2,000 of principal then the net cash proceeds of refinancing to a $2,500 total will look as follows:
- Current principal – $500
- Refinance Establishment Fee – $400
- Net Cash Disbursement – $1,600
You would only consider this kind of refinance if the $1,600 is sufficient for the desired use of the loan.
Refinancing Loans with Other Lenders
If you currently hold a cash loan with a competitor and want to refinance it with Gusto Cash, the process is referred to as an external refinance.
People generally choose to refinance loans from other lenders to consolidate debts into a single monthly payment, spread out repayments to prevent recuurring use, or escape a poor customer service experience.
When refinancing an external loan, you need to request a formal payout quote from your current lender.
This document details the exact dollar amount required to close your contract today.
You will then apply with Gusto Cash for a loan large enough to clear that payout figure.
If approved, we will pay out your old lender directly, closing that contract and shifting your payment obligations into a single repayment schedule.
Watch Out for Exit Fees
While Gusto Cash charges zero early repayment fees, many competitor lenders charge break costs.
This is why the payout letter is a critial step in the process as this will include any exit fees included in your contract.
You should also consider this cost when deciding if it is worth refinancing the loan.
Why You Should Only Refinance if Necessary
Unlike a long-term mortgage where the setup costs are tiny compared to the total loan size, refinancing a MACC personal loan comes with a a greater cost relative ot the cash amount.
Opening a new facility means you will incur an additional establishment fee capitalised into your new balance.
For this reason, refinancing should only be done if it is absolutely necessary for your budget or if you have a new funding requirement that justifies the setup cost.
When Should You AVOID Refinancing?
There are times when a refinance will only make your situation worse.
Do not refinance if:
- The new establishment fee erases your savings: If you only owe a few hundred dollars, adding a new $400 establishment fee to your balance makes zero sense.
- You are very close to the end of your loan: If you only have a few months left, it may be better to stick it out and finish the loan.
- You are facing temporary hardship: If you hit a one-off emergency, do not pay fees to refinance. Contact your current lender’s hardship team to discuss a temporary payment variation instead.
Frequently Asked Questions
Is the cash loan application process different when refinancing?
No. Whether you are a new customer or a past borrower refinancing internally, the process is identical. You must fill out the form, submit your 90 days of bank statements, and pass a standard credit assessment.
Do I have to pay out my current loan myself during a refinance?
No. Once your new refinance application is approved, the new lending facility will automatically disburse the exact payout amount to your old contract to close it out. Any remaining top-up funds are then sent directly to your bank account.
Can I refinance multiple small loans into one?
Yes. This is known as debt consolidation. You can apply to refinance multiple outstanding cash loans or utility debts from different lenders into a single MACC personal loan facility, leaving you with just one establishment fee and one clear repayment to manage.
Need Help Assessing Your Options?
You should only ever refinance a cash loan if there is a clear financial benefit to doing so, or you are solving an urgent need.
It is also critical that you are not putting yourself in an unsustainable financial situation by doing so.
You will incur additional fees when setting up a new loan facility. However, this would be the case if you applied to another MACC lender anyway.
So if you prefer to minimise the number of payments you have to manage then it can make sense to opt for the refinance when you need to access additional funds.
