Refinancing replaces an existing loan with a new facility. Consolidation uses one new facility to settle several debts. Either can simplify cash flow or change the rate and term, but a lower installment does not automatically mean a cheaper loan.
Compare the settlement-to-finish cost
- Obtain written settlement figures for every old loan.
- Add early-settlement charges, release costs and unpaid fees.
- Identify the new principal, including any fees added to it.
- Compare the new interest method and full repayment schedule.
- Calculate total payments from today to final settlement under both options.
- Check whether the new term extends debt well beyond the useful life of what was financed.
Common trade-offs
Extending the term can reduce the installment while increasing total interest. Consolidating unsecured debt into a secured loan can put an important asset at risk. Taking additional cash during refinancing increases principal. A promotional rate may later change. These are reasons to compare documents, not reasons to reject every refinance.