How to reduce your loan payments
Written by
Joe Towner
Reviewed by
Amy LancashireYou can usually reduce your monthly loan payments by refinancing to a lower interest rate, spreading the balance over a longer term, or consolidating debts into one. Most of these options lower what you pay each month, but some cost more overall.
Here's how each one works, and what to check before you make a change.
Can I lower the payments on my current loan?
Usually not on the loan as it stands. Most personal loans have fixed monthly payments agreed at the start, so you can't simply ask for a smaller payment while keeping the same loan running. To pay less each month, you generally need to replace the loan with a new one, combine it with other debts, or, if you're finding it hard to keep up, ask your lender for help. Each of those options is covered in more detail below.
How to refinance a loan
Refinancing means taking out a new loan to pay off an existing one, usually to get a lower interest rate or a longer term. In the UK you might also hear it called switching or replacing your loan.
It can be worth it if:
Interest rates have fallen since you took out your loan
Your credit score has improved, so you qualify for a better rate
You want to spread the balance over a longer term to lower each payment
To refinance, compare deals and check your eligibility with a soft search, apply for the new loan, then use it to repay the old one. Before you do, check whether your current loan has an early repayment charge, because that can eat into any savings. And remember that extending the term lowers your monthly payment but means more interest overall, since you're borrowing for longer.
Consolidating your debts
If you have several debts, such as credit cards and loans, you could combine them into a single debt consolidation loan. That leaves you with one monthly payment, which can be lower than the total you were paying across all of them, especially if the new loan has a lower interest rate.
The trade-off is the same as extending any loan: a longer term can mean more interest overall, even if each month costs less. Consolidation works best when the new loan's rate is lower than what you're paying now, and when it helps you stay on top of your payments rather than freeing up money to borrow more.
What if I'm struggling to afford my repayments?
If your payments are becoming hard to manage, the most important thing is to contact your lender as early as you can, even if you've already missed a payment. It’s better to let your lender know so they can help find a way forward.
Under FCA rules, lenders have to treat customers in financial difficulty fairly and offer support. Depending on your circumstances, that could include:
A temporary payment break or reduced payments for a while
Freezing or lowering the interest on your loan
A longer-term change to your payment plan
You can also get free, confidential debt advice from MoneyHelper, StepChange or Citizens Advice. If you need breathing room, the government's Breathing Space scheme (available in England and Wales) can pause interest and most contact from lenders while you get debt advice. Our guide covers how Breathing Space affects your credit score.
What should I check before refinancing?
Before you switch or refinance, weigh up:
Early repayment charges - check whether clearing your current loan early triggers a fee that cancels out the saving
The total cost, not just the monthly payment - a smaller payment over a longer term can cost more in the end
The impact on your credit - applying leaves a mark, and there are other ways loans affect your credit score
Whether you're extending more than you need - only stretch the term as far as you have to, so you don't pay extra interest for no reason
Reducing Loan Payments FAQs
There are a range of financial products available that may suit your needs. We encourage you to research your options carefully and consider seeking independent financial advice before making any decisions. This blog is for informational purposes only and does not constitute financial advice.
