With the cost of living continuing to rise, it can feel increasingly hard to make ends meet in terms of your personal finances, and it can also be challenging running a business in an inflationary environment. One way of combatting inflation is to reduce the escalating cost of borrowing by reviewing your current arrangements.
A new record has been set for refinancing, with more than $19.5 billion of loans changing lenders in late 2022. If you’re feeling like it’s time you reviewed your borrowing arrangements – either from a personal or business perspective, here are a few things to consider.
Tips For Mortgage Holders
With rates on the rise, it makes sense to shop around for the best deal. That could mean replacing your existing home loan with another loan from either your current lender or a different financial institution.
If you would like to stay with your current lender, the process can be simpler as your lender already has all your information and it can be easier to renegotiate than switch to a different provider. You may also incur lower or fewer fees by sticking with your current lender, but this will vary according to providers and loans. External refinancing is generally a little more complex but gives you the opportunity to compare providers. Often, lenders provide a more competitive rate to new to bank borrowers than existing. Yes, banks also have less loyalty to their existing customers!
Things to consider when comparing providers and loans include:
Interest Rates
Seeking out a lower interest rate is usually the first thing on people’s minds when they review loans and providers. But it’s important to weigh up other factors as well. It is important to consider how you will live with the loan and its functionality over time and not just on the day of the settlement.
Timing
Fixed rate and introductory period loans can be lower to start with but generally revert to a standard variable rate after a predetermined period so it can make sense to review your situation before the fixed rate ends.
Loan Term and Payment Frequency
Adjusting your loan term and home loan repayments could potentially save you money over the life of the loan. This may mean a higher repayment but incurring less interest expense.
Access To More Loan Features
Features such as an offset facility or splitting your loan may be appealing. Some lenders also offer cashback deals, although it is important to weigh up what the loan offers rather than be swayed by the promise of a cash give away.
Tips For Small Businesses
For businesses it also might be time to review your borrowing arrangements.
If you have a loan and your financial situation and credit score have improved over the course of your loan repayments, you might also be in a position to take advantage of a lower rate and more favourable terms than your current loan. Having your tax returns up to date is paramount for business owners. Whilst accountants can optimize the tax you pay, this often means lower income in your returns and this in turns means lower borrowing capacity.
Some things to consider as a business include:
Consolidating Existing Debts
If you have multiple debts incurring high interest repayments it can also be beneficial to combine them into one loan at a lower rate. However, it is important that such debts are paid in a shorter period of time and not to be taken out as 30 years loan.
Changing The Loan Amount Or The Term Of The Loan
It’s common for businesses to refinance to take advantage of the equity built up in their business and that may mean increasing their borrowings. If expenses are increasing or you are seeking greater cashflow you can refinance your loan amount to be repaid over a longer term and decrease your monthly repayments.
Removing A Secured Asset
If your home or another personal asset is being used as collateral for your loan and your business is now in a position to borrow without it, you may wish to consider switching from a secured to an unsecured loan.
There are also other ways of accessing finance as a business, including having an overdraft or invoice finance where money is loaned against unpaid invoices, that you may wish to explore.
It’s important to evaluate each method of borrowing or accessing finance and review your situation on a regular basis to ensure your arrangements suit your needs and that you are not paying too much in the way of fees and interest.
If you are considering changing providers to seek a better deal, reach out to Moneyclip on 02 9299 2292 or myadviser@moneyclip.com.au to make sure you weigh up all the pros and cons of making the switch and the various deals on offer.