Personal Loans

Consolidation Loans: How to Get a Better Deal on Your Repayments

Written by:

Georgia Matthews


June 23, 2020

Last updated

August 12, 2022

Reading time

5 minutes

Georgia Matthews

Georgia Matthews is a contributing Writer at Oiyo. She is currently studying a dual Bachelor of Laws / Bachelor of Arts (majoring in history and psychology) from the University of Queensland. Georgia has worked in a few law firms during her studies and is currently working in a corporate law firm. She is most passionate about writing, history, and travelling.

Refinancing your debts with consolidation loans

Do you currently have multiple credit card debts? Are you paying back a car loan on top of a credit card, on top of a personal loan? Is it difficult to remember what you have and haven’t paid yet? If you’ve answered yes to any of these – you’re not alone. Having multiple debts is the reality for many Australians, and while not all debt is bad, it can be tricky to manage.

According to the ABC’s 2019 Australia Talks National Survey, 37% of Aussie’s are struggling to pay off their own debts. Multiple debts can complicate cash flow and leave you feeling overwhelmed and strapped for cash. That’s where consolidation loans may be able to help.

A consolidation loan brings together all your existing debt and puts it into a single personal loan, with one interest rate. This tidies up all those outgoing repayments, so all you have to worry about is one single fortnightly/monthly repayment. Although getting into another loan is never something to enter into lightly, consolidation loans can allow you to better track your finances, so you can spend wiser and budget better. 

Why a consolidation loan may be beneficial for you

Here’s a simple table of the basic pros and cons of consolidation loans. In reality, your individual circumstances will always have a role to play. So, consider your current financial situation when weighing up your options. 

Pros  Cons 
  • Consolidation loans reduce your payments so when the time comes, you are only making one simple and stress-free repayment
  • Having only one repayment will allow you to budget more easily
  • You may be able to reduce the overall cost by negotiating a better interest rate
  • Consolidating may stop all those nuisance calls from various debt collecting companies
  • A new loan may provide better features than your existing loans, such as flexible loan terms or the ability to repay the loan faster
  • There may be some fees, such as exit or break fees, that are chargeable upon breaking your existing loans
  • If you are consolidating your home loan, government duties and taxes may apply
  • Depending on the total of your debt and your income, one large repayment may not be affordable for you

Simplifying your finances

Owing money to a number of different lenders can be overwhelming. Each loan will have a different balance, interest rate and repayment date. It can oftentimes be confusing to keep track of all your outgoing expenses for this reason. As a result, one of the main reasons people consider consolidation loans is to simplify their debt. So, instead of having multiple loans to manage they just have to deal with the one. 


The other key thing to consider when merging your debts is to ensure that consolidation is affordable for you. Many lenders will offer better interest rates than what you may currently be paying on your existing loans. This could, for example, be the case if your credit score has improved. 

*Note: lenders may offer you a fixed interest rate or a variable interest rate. Fixed interest rates remain the same throughout the loan term so that you are able to clearly budget for repayments. Variable interest rates change depending on the market, and may sometimes be lower than fixed rates. Be mindful that the flexibility of variable interest may make budgeting a little trickier. 

Repayment frequency

With consolidation loans, you will be paying one repayment instalment per month, for whatever term you choose. For example, you may have synced some of your existing loans so you pay them when you receive your payslip. Or, your loan repayments may be staggered over the month so you are able to afford smaller repayments over time. 

Loan terms

Consolidation loans will often have longer terms than your current loans, as they will be for a larger amount of money. This means you may accrue more interest over the life of the loan. However, if the interest rates are better than those for your existing loans, it may be a better deal in the long term. It’s important to do the math and compare how a consolidation loan will affect your finances compared to your current loans.

Though the convenience of one repayment may be worth it, ensure that your income will meet the monthly repayment. After all, consolidating all your debt means you are making large repayments in one go.

Additional features

A common reason to consolidate your loans is to take advantage of better loan features. For example, a consolidation loan may offer better interest rates or allow you to alter the frequency of repayments. You may also be able to change the repayment term. These additional features import some flexibility into your loan, which you may not currently have. 

On the other hand, you may want to pay back your loans faster. Consolidation is ideal if your current loans won’t allow for early repayments, increasing instalments or reducing the loan term.

In any case, it’s wise to do your research. Compare interest rates, loan terms, and loan repayments. We recommend that you use a loan calculator to calculate how these additional features will benefit you in the long term. Consolidation loans aren’t just about the convenience, they can be a mechanism to save money. 

You can use the loan calculator on the Moneysmart website

Fees and charges

Have a look at your existing loans to see if they will charge you any additional fees for exiting or breaking the agreement. Some lenders will contract for an exit, break or discharge fee. Though these fees are often small, they add up if you are breaking multiple loans. 

Additionally, your new lender may charge an establishment or application fee, for them to establish your account with them or process your application. Read over the fine print carefully, as this is just another fee on top of the exit fees you may have already paid. 

Always speak with your existing lenders and your new lender. If you are refinancing through a consolidation loan, there may be scope to transfer or waive some fees.

Further questions

Which of my debts can be consolidated?

The answer to this question varies between lenders. Check the market to figure out which lenders will accept what debts. Most lenders, however, will offer personal loans to consolidate regular debts such as credit card debt, car loans, medical bills or personal loans. 

Note that merging your home loan with other, smaller debts may be detrimental to your finances. This is because home loans are generally for a far longer time period than other types of loans, and you may pay more in interest over the life of the loan.  

Should I apply with a new lender or can I apply for a consolidation loan with my current lender?

 Sometimes, your current lender may offer the option to consolidate your loans. If you have a good relationship with your lender, this may be a smart option. Your current lender may be more willing to accept your application if you are a responsible borrower.

However, as always, you should review the deal that your lender is offering. It may not always be the best available rate, and despite your current relationship with them, you may get a better deal elsewhere. Compare your options before you apply, and lenders are very competitive. Feel free to speak with your lender to negotiate the best deal for you. 

Can I consolidate my loans if I’m on Centrelink?

Some lenders consider Centrelink payments as a regular income. They will, therefore, consider this when reviewing your application for a consolidation loan. If you are on Centrelink, be upfront and honest about your financial situation. Your lender should be able to assist you in reaching an agreement that is suitable for you.

Will my credit score affect my ability to consolidate my loans?

One of the many reasons you may consolidate your loans is to find a better deal. Better deals may become available to you if your credit score improves. Improvement to your score can occur if you are meeting all your existing repayments on time, showing that you are financially responsible and a reliable borrower. On the other hand, if you are struggling with your repayments and not meeting them on time, your credit score may not have improved or could have reduced. In this case, you may not be eligible for better loan deals.  

As we mentioned above, ensure that your income is suitable to meet your consolidation loan repayments. If consolidating your debt results in repayments that are too high for you to meet on a regular basis, this may hurt your credit score if you are unable to meet them. You don’t want a consolidation loan to negatively impact your credit score.

To check your credit score, you can request a copy of your credit report from credit bureaus such as Equifax, Experian or Illion. These credit reporting bodies are approved by the Australian government and are obliged to provide you with a free credit report every twelve months (if you request). 

Steps to consolidate your debt 

If you have decided that consolidating all your loans is a good idea, then you will need to follow these steps: 

Step 1: Review your personal finances 

Create an inventory of all your debts, including all information about each one. Note the interest rate you are paying, the loan term, the balance left, etc. Writing a list may help you visualise your debts, so you can see exactly how much you owe and to whom.

Further, review your income and expenses. Figure out how much you spend monthly, on debt as well as regular and personal expenses. This will give you an indication of your current financial situation, so you can see how much a consolidation loan may be able to save you.

Step 2: Do your research

Research the market to see what loans are available. Compare interest rates in addition to other features to see what is the best deal for you. 

Step 4: Calculate the cost of consolidation loans

 As we mentioned above, a consolidation loan calculator can assist in calculating the cost of consolidating your debt. Don’t forget to include any additional fees and charges that may be included on top of the actual cost of the loan.  

Step 5: Apply for a consolidation loan

Once you’ve done your research and have decided on the best loan for you, put in an application. It may take some time for the application to be accepted. It’s wise to consult with your lender to see if they can help you reach a loan agreement that is manageable for you.  

Further, if your application is accepted, be sure that all your existing loans are closed and the account balance is at zero. You want to avoid any nasty surprises later down the track! 

A note about Oiyo

 At Oiyo, we’re trying to change the way we talk about money. We’re not financial advisors, but we can offer helpful insights and information on finance to help you navigate your finances. 

We write helpful guides covering everything from personal finance to loans to insurance. Our aim is to make it easy for Australians to have access to simple, to-the-point financial guides.

Debt consolidation bad credit: Get the lowdown.


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