What is refinancing?
- By Book Keeping Pros
- Sources checked 15 Oct 2026
Definition
Refinancing is replacing an existing loan with a new one, with the new loan's funds used to repay the old. The new loan may come from the same lender or another one, and usually has its own interest rate, fees, repayments and maturity date. In the books, the old loan is closed and the new loan takes its place.
In the books, refinancing closes one loan account and opens another. The new loan's funds go to the old lender, which brings the old loan account to nil, and the new loan account starts with the amount borrowed. If the payout figure is higher than the old balance in the books, the difference is usually interest or fees charged up to the payout date, and it needs to be entered so the old account ends at exactly nil.
Any establishment fee on the new loan, or cost of ending the old one early, is entered from the lenders' paperwork. Ask your accountant how those costs are treated.
After refinancing, the repayment amount, the repayment dates and the maturity date usually all change, so the budget and cash flow forecast need the new loan's figures in place of the old ones.
In Australia
business.gov.au's glossary describes refinancing as paying off an existing loan with a new one. The reasons it gives include spreading the loan over a longer period, lowering fees or interest rates, changing banks and switching from a fixed to a variable interest rate.
Worked example
| Step | Old loan balance (AUD) | New loan balance (AUD) |
|---|---|---|
| Balance in the books before refinancing | 36,400.00 | 0.00 |
| Interest charged up to the payout date | 36,518.00 | 0.00 |
| New loan drawn and paid to the old lender | 0.00 | 36,518.00 |
Illustrative example only: these rows show the method and are not sourced data.
Common mistakes
- Recording the new loan's funds as income when they pass through the bank account.
- Leaving a small balance on the old loan account because interest charged up to the payout date was never entered.
- Keeping the old repayment amount in the cash flow forecast after the new loan has started.
Related terms
Related service
Bank reconciliations
Each bank, card and loan account reconciled to its statement.
Sources
- Key financial terms
business.gov.au, Australian Government. Current at 15 October 2026, released 9 July 2024. Checked 15 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.
- Improve your cash flow
business.gov.au, Australian Government. Current at 16 October 2026, released 20 May 2025. Checked 16 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.