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Loan Refinancing vs. Restructuring

By July 12th, 2024No Comments
a laptop with the words "refinance" shown on the monitor screen

Facing high repayments or changing financial goals? Many Australians explore options to manage their loans more effectively. This article dives into two key strategies: refinancing and restructuring. Understanding the differences between them can help you find the best solution for your situation.

Understanding Loan Refinancing

In Australia, loan refinancing involves replacing your ongoing loan (usually with home loans) with a new one, typically to get a better deal.

Here’s how it works: You approach a new lender or your current lender to secure a new loan with different terms. If approved, the new loan pays off your existing debt, and you’re left with a single loan and a hopefully improved repayment structure.

People refinance for a few reasons. The most common is to get a lower interest rate, which can significantly reduce your monthly repayments. Refinancing can also allow you to adjust your loan term or access additional funds through a cash-out refinance.

However, it’s not all sunshine and rainbows. Refinancing often comes with fees, and you might not qualify for a better interest rate if your financial situation hasn’t improved since taking out the original loan.

Understanding Loan Restructuring

Loan restructuring is a process where you renegotiate the terms of your existing loan with your lender. It’s often used as a last resort to help you deal with financial distress and get back on track with your repayments.

For example, you lose your job and can’t afford your current monthly payments. Debt restructuring could involve extending the loan term, which would lower your monthly payments but also mean you pay more interest overall.

While it can provide much-needed relief, there are downsides. Restructuring may come with fees, and it could negatively impact your credit score. It’s important to weigh the pros and cons carefully before going down this path.

Key Differences Between Refinancing and Restructuring

Refinancing and restructuring loans are strategies to change your existing loan agreement, but they serve different purposes and implications. Here’s a breakdown:

Impact on Credit Score

  • Refinancing: Generally has little to no impact on your credit score, as long as your financial situation is stable.
  • Restructuring: This may negatively affect your credit score, especially if it involves missed payments before the restructuring.

Loan Terms and Interest Rates

  • Refinancing: This may involve changes to the loan term or interest rate. The goal is usually to get a lower interest rate but you might also extend the term.
  • Restructuring: Primarily focuses on modifying the repayment schedule to ease the burden. This might involve extending the term, which could increase the total interest paid in the long run.

Financial Obligations

  • Refinancing: This replaces your existing loan with a completely new one. You’ll only have one debt to manage.
  • Restructuring: Modifies the terms of your existing loan. You’re still responsible for the original debt amount, but the repayment schedule is adjusted.

Eligibility Criteria for Refinancing and Restructuring in Australia

Refinancing and restructuring loans in Australia have different eligibility requirements, though some basic criteria overlap. Here’s a breakdown:


Generally, debt refinancing requires you to be in a good financial position. Here are some common requirements:

  • Minimum age: 18 years old
  • Residency: Australian resident or permanent resident
  • Loan-to-Value Ratio (LVR): For home loan refinancing, you’ll need at least 20% equity in your property (meaning you owe less than 80% of its value)
  • Stable employment and income: Lenders assess your ability to repay the loan


Restructuring is often considered a last resort for borrowers facing financial hardship. There may not be strict income requirements, but lenders will assess your situation and ability to meet the new repayment terms.

Documentation for Both

When applying for refinancing or restructuring, you’ll typically need to provide documents like:

  • Proof of identity (driver’s license, passport)
  • Income statements (payslips)
  • Property valuations (for home loans)
  • Loan statements

Remember, these are general guidelines. Eligibility can vary depending on the lender and the specific loan product. It’s always best to consult with a lender or financial professional to determine if you qualify for refinancing or restructuring.

When to Consider Refinancing

Refinancing your loan can potentially save you thousands of dollars. Here are some situations where it might be a good idea:

  • Interest rates drop: If interest rates have fallen since you took out your original loan, refinancing to a lower rate can significantly reduce your monthly repayments and save you money over the life of the loan. You can watch the Reserve Bank of Australia’s cash rate decisions to see if this might be an opportunity.
  • Your credit score improves: If you’ve improved your credit score since taking out the loan, you may qualify for a better interest rate with a refinance [invalid URL removed]!]].
  • You want to change your loan term: Refinancing can allow you to shorten your loan term for faster repayment or extend it for lower monthly repayments.

Remember: Refinancing typically comes with fees, so make sure the long-term savings outweigh the upfront costs. It’s also a good idea to consult with a financial advisor to see if refinancing is the right decision for your specific situation.

When to Consider Restructuring

Loan restructuring is a serious step, often seen as a last resort to manage overwhelming debts. Here are some signs it might be necessary:

  • Struggling to make repayments: If you’re consistently missing loan repayments or only managing minimum payments, restructuring can help create a more manageable schedule.
  • Facing financial hardship: Unexpected events like job loss, illness, or natural disasters can significantly impact your finances. Restructuring can provide temporary relief.
  • Negotiating with creditors: If you have multiple debts and struggling to keep track, restructuring can involve consolidating them into one loan with a single creditor, potentially with a lower interest rate.

Financial and Legal Considerations

Both refinancing and debt restructuring can impact your finances and legal obligations but in different ways. Here’s a breakdown:

Financial Considerations

  • Refinancing

      • May involve exit fees from your current lender
      • May come with new loan application fees for the refinanced loan
      • But, the potential benefit is securing a lower interest rate, which can save you thousands in the long run
  • Restructuring

    • Generally, less upfront fees compared to refinancing
    • May not significantly improve your interest rate, especially if you’re behind on repayments.

Legal Considerations

  • Refinancing

      • Involves a new loan contract with potentially different terms and conditions. Make sure you understand everything before signing
  • Restructuring

    • May involve negotiating with lenders and potentially legal requirements depending on the complexity of the situation

Understanding the difference between refinancing and restructuring your loan can help you manage your finances better. Refinancing allows you to secure a better deal on your existing loan, typically by getting a lower interest rate. This can save you thousands of dollars over the long term. Restructuring, on the other hand, focuses on helping you manage repayments when facing financial burden. It may involve extending the loan term or converting missed payments into the total loan amount. While it provides relief to borrowers, it may negatively impact your credit score.

Consult a financial advisor to determine if refinancing or restructuring is the right option for you, considering your situation and financial goals.

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