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.
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.
In an environment where rates are increasing , the banks claw back extra margin and profits by keeping existing customers on old rates whilst simultaneously winning new business by offering new client’s better rates. It pays to know what rate you should be on and ensure that you are not paying this bank latency tax.
Things to consider when comparing providers and loans include:
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.
Adjusting your loan term and home loan repayments could potentially save you money over the life of the loan.
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.
Some banks offer incentives like cash rebates and competitive initial rates but then refuse to review your rate as the rate becomes less competitive. You need to weigh up these initial perks with the potential for long term additional costs.
For businesses it also might be time to review your borrowing arrangements.
If you have a loan and your financial situation and credit score/internal bank customer score have improved over the course of your loan repayments, you might also be in a position to take advantage of a and more favourable terms than your current loan. Likewise, if you have reduced your debt or the value of your security has increase, a better rate can often be negotiated.
Some things to consider as a business include:
If you have multiple debts incurring high interest repayments and multiple fees it can also be beneficial to combine them into one loan at a lower rate.
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.
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.
It’s crucial to explore all available avenues when it comes to financing as different financing options can have significant impacts on tax and loan products, resulting in significant savings. As such, it’s worth investigating these options to see if they’re suitable for you or your business.
We’re excited to announce that Hamilton Morello will soon be launching our finance division. We recognize the intrinsic relationship between accounting, financial planning, and lending, and this new area of expertise will enable us to continue providing our clients with the right advice.
If you have any urgent finance-related questions, please do not hesitate to speak with one of our partners or consultants. We’re always here to assist you in making informed financial decisions that are in your best interest.
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