Loans of any kind should not be something you just “set and forget”, there is plenty you can do to pay less interest and reduce your overall costs over the life of your loan.
With interest rates on the rise and inflation remaining stubbornly high, it is more important than ever to review your current loan and interest rates, and ensure you’re getting the best deal you can.
Here are four effective loan management strategies you can use to make sure you’re paying as little interest as possible…
1. Refinance
Don’t assume that the interest rate you’ve got at the moment is the best you’re going to get.
You can always refinance by moving your loan to a different lender, or changing to a loan type that minimises your costs and suits your overall needs and goals better. There are plenty of lenders out there who would be very happy to have your business and can offer a lower rate than what you’re currently getting – you just need to find and compare the best options.
And you’d be surprised how a little rate change can make a really big difference. It may not seem worth it on first glance to re-negotiate your interest rate for a seemingly small reduction – but decreasing your rate by even 0.2% or 0.3% can make a huge difference to the amount of interest you pay. For example, reducing your interest rate from 6.09% to 5.79% on an $800,000 loan could save you over $55,000 in total payments.
Our Finance Team offer a Loan Pricing Request service, where we shop around on your behalf to find out who has the best (lowest) possible interest rate for your loan needs, show you with a range of competitive options to pick from, and provide recommendations on what would suit your circumstances best.
In one real-life client case, a refinance of their home loan resulted in a whopping $212,500 reduction in interest charges over the life of the loan. Plus the clients got $3,000 cash back from their new lender.
The timing for refinancing is really important. Settlement can take 4-6 weeks depending on the complexity of your circumstances, so the earlier you act, the better off you’re going to be in the long term – especially if you’re about to come off a fixed rate. You can book a loan pricing request with our Finance Team to get started as soon as possible.
2. Negotiate
Some people get turned off the idea of refinancing because they’re happy with their current lender, or can’t move elsewhere because they’re locked in through credit cards or other loans. But changing lenders is not the only way to cut down your interest rate.
Instead of jumping ship, we can negotiate a better rate with your existing lender instead and still save a huge amount on interest over the life of your loan.
Case Study: Negotiating Interest Rates on a Commercial Loan
Our Finance & Lending Manager Tony Hamann recently spoke with Client X, who has an existing Commercial/Trust facility loan with a well known Australian bank.
Client X preferred to stay with their existing bank, so re-financing and moving to another lender to get a better interest rate wasn’t an option. So instead, Tony contacted Client X’s bank on their behalf and negotiated a lower interest rate.
Tony was able to cut the interest rate from 8.98% to 6.53%, which will save the client $68,852 in interest annually, plus $5,000 per month in repayment savings.
It’s always worth asking for a better deal. If you’re not sure how to approach negotiating or you’d like a broker to contact your lender on your behalf, get in touch with our Finance Team to book a time to chat about loan and how we could help in the negotiating process.
3. Pay Fortnightly
If you’re paying your loan back monthly, you’re only making 12 payments per year If you commit to paying fortnightly instead, you’ll consistently pay back extra money towards your loan every month, which adds up dramatically over time – especially in the context of a 30 year loan. This not only cuts down the time it takes to pay back your loan, you’ll significantly reduce your interest costs as well.
For example, if you paid an extra $50 a fortnight towards an $800,000 loan, you could end up saving between $60,000 and $70,000 in interest across the lifetime of your loan, plus pay back the loan a year and a half earlier.
It’s pretty common to get paid fortnightly, and therefore makes sense to sync up your pay cycle with your loan repayments – so your debt is being reduced each time you get paid and before any other expenses or spending gets taken out. And even if you do get paid on a monthly basis, you can still budget for fortnightly repayments across the month.
If you’d like to see a direct comparison between repaying your loan monthly and fortnightly, get in touch with our Finance Team at finance@aintreegroup.com.au.
4. Make Additional Repayments
Similarly to paying fortnightly, making any extra repayments towards your loan – even ad hoc ones – will ultimately help you be better off overall. The more you chip away at the loan, the faster you pay it off and the less interest you pay.
It doesn’t need to be officially laid out as automatic fortnightly repayments like the example above. You can choose to make regular extra repayments every month, or even each quarter – just set a reminder in your calendar on payday and hold yourself accountable!
Even lump sum additional repayments here and there are better than sticking to the bare minimum repayment schedule over the entire length of the loan.
You do not need to be an existing Aintree Group client to take advantage of any of our Finance and Lending services – any and all applicants are welcome to get in touch with our Finance Team to find out how we can assist.
