The lending environment is changing all the time, so it’s important to regularly review your loan or loans and make sure you’re getting the best deal you can.
Say you’ve had a loan for the last 2 years for example, chances are that you’ve missed one or more potential interest rate reductions. On top of this, your life may have changed. Have you accrued some equity? Got a promotion at work? Had children? Any changes mean your current loan may not be the most suitable for you.
Rate expectations
One of the major reasons to review your loan is that there may be a better deal on interest rates available.
If you are paying more than you need to on interest, you are essentially donating money to the bank.
Interest rates have been trending downwards for the past decade. In fact, multiple banks have cut rates on their variable loan offerings in the past month, so it’s well worth testing the market.
There are variable rate loans out there for owner-occupiers for below 2% and investment loan rates below 3%. On the flipside, some rates are above 5%. If you have a $300,000 loan and swap a 5% interest rate for a 2.5% one, that’s $7500 a year you are taking back from the bank and using elsewhere.
Once compound interest is factored in, you save even more money because you take years off your loan.
Flexible features
Loans are complex beasts these days with a raft of features that can be tailored to the diverse needs of borrowers.
A couple of years out of the market could mean you are unaware that lenders are offering extra repayment options on fixed loans, better offset facilities or waiving certain fees. All of these changes can add up to money and time saved.
The flipside of this is that if you sign up to a loan with more bells and whistles than you need, you may find you are paying for the privilege of features that you never use.
And sometimes you can be trapped by a loan’s fine print…ie, the rates are great, the features are great, but you’re locked in for 2 years and can’t revalue to access your equity.
So, always look further than just interest rates, when choosing a loan.
Introducing…a better deal
If it’s been some time since your last loan review, you’d better believe you’re not on the best deal that bank can offer you.
See, banks count on you paying the “lazy tax”. Why do you think the bank sent people to your primary school when you were a kid to “educate” you about saving money and using deposit and withdrawal books?
It’s because they know that once people sign up with a certain bank, the vast majority never bother to leave.
Once you are on their books and have been for years, do you think they are offering you the kind of deals they are offering potential new customers?
Of course not. They don’t need to. But go online and you might find they are offering customers of other banks a $3000 cashback deal to jump ship to them. That’s because their business models are based on recruitment and retention.
But what about you? You’ve been a loyal customer for years, shouldn’t they reward you for your loyalty? The reality is that if you want access to those deals, it’s all on you.
Research what is out there at other banks. Are there lower rates, cashback offers, better features, introductory deals? If there are, you should be fully prepared to switch.
And if you like your bank and want to stay, simply go back to them and threaten to leave if they don’t match the deals. That’s where the retention part of their business model kicks in and you might just find they have something a little better up their sleeve for you.
