Are you considering refinancing your personal loan – perhaps your car loan, boat loan or motorcycle loan? There are many reasons to consider refinancing and we explain some of the pros and cons.
Here are some of the main reasons our clients refinance:
The existing loan is too expensive.
It is very common for consumers to sign up for high interest loans.
If you have previously had poor credit and need to “repair” your credit history, it may be necessary for you to take out a high interest loan; as Lenders may consider you high risk. High Risk = Higher Interest. However, your risk profile doesn’t have to be tarnished indefinitely. After a period of time repaying your loan you may be able to refinance to another lender at a lower interest rate. You should always be looking for an exit strategy.
You may have inadvertently signed up for a high interest loan through an unlicensed finance operator, who may not be required to fully disclose the terms of the loan.
The need to reduce your monthly outgoings,
Unforeseen situations arise in life that impact your cash flow – for example, unemployment, illness or reduced income. If any of these events occur it may be necessary to reduce your monthly out goings. And one consideration is to refinance your personal loan over a longer period, to reduce the overall repayment.
Reduce your monthly commitments to meet a Home Loan Lenders servicing requirements:
Home Loan lenders have strict servicing guidelines. Their policy dictates they use the actual repayment of your personal loan/s in their serviceability calculations. So your Broker or Lender may suggest you refinance your personal loan, to reduce the contracted repayment and meet the servicing requirements.
To remove a co-borrower or guarantor from the loan
If a loan originally included a co-borrower or guarantor who now needs to be removed, then the loan must be refinanced. You can’t simply remove the Borrower or Guarantor from the existing loan.
Dissatisfied with your existing Lender
Too often, customers are simply dissatisfied with the service they are receiving from their existing Lender. And would like to move their business away from them. Or they would simply like to diversify their borrowings so they do not have concentration with one lender specifically.
Whatever the reason, it is necessary to understand the benefits of doing so, and whether these outweigh the negative, At first glance, improved cash flow, lower repayments or a lower interest rate may seem like a great idea for refinancing. But you have to dig a little deeper to determine the .true savings and benefits.
Here are two examples of the financial benefit/s in refinancing your loan at different stages:
If your personal loan is at a high interest rate then it may seem reasonable to refinance, get a lower interest rate and save interest, But it is important to understand the costs of refinancing your loan, the establishment fees and the terms of the new loan. For example, let’s assume you originally borrowed $ 20,000.00 over 7 years at 12%. The total amount you would repay over 7 years is $ 29,652.00. Now lets say, 5 years in to your loan you are offered an interest rate of 6% by another Lender. On first look it seems like an attractive offer, right? Your balance at that time will be approximately $ 7,500.00 and you still have $ 8,472.00 to repay. The new loan is ($ 7,800.00 including an establishment fee of $ 300) set up over 2 years, and has a total amount repayable of $ 8,297.00. A saving of 175.00.
If you use the same numbers in Example 1, but assume this time that the loan is being refinanced after 12 months. The assumed balance at 1 year would be $ 18,059.00. The total amount repayable is still $ 25,416.00 for the existing loan. Refinancing over the remaining 6 year loan term at 6% would reduce the total amount payable to $ 21,549.00. A saving of $ 3,867.00.
If you do decide to refinance your loan, it is important to seek professional assistance through a reputable Lender ot Broker. At yesapproved.com.au we provide a comprehensive ‘financial benefit’ assessment, as part of our pre-assessment process. We always represent your best interests, to ensure you are fully aware of the pros and cons of refinancing.
We will help:
Negotiate the lowest rate possible on the new loan, by exploring all options through our Lender Panel.
Minimise the upfront costs associated to the new loan.
Ensure you are able to make additional repayments and able to repay earlier without penalty (or without a significant penalty)
Calculate your repayments on our self-serve loan repayment calculator.
The information is intended to be of a general nature only. We do not accept any legal responsibility for any loss incurred as a result of reliance upon it – please make your own enquiries.
Any advice contained in this document has been prepared without taking into account your particular objectives, financial situation or needs. For that reason, before acting on the advice, you should consider the appropriateness of the advice having regard to your own objectives, financial situation and needs.