Before you sign any loan contract, you should be really clear on what the loan will cost and what features are included. Here are some questions to ask your broker or lender before you pick up a pen.
What is the comparison rate?
The comparison rate is made up of the regular interest charge plus most upfront and ongoing fees and charges. This gives you a clear idea of the true cost of a loan and lets you make a more accurate comparison between lenders.
What other fees could I face?
The comparison rate does not include all fees. You may pay a fee to use certain loan features – for example, redraw. You may not use all the loan features now, but it's important to know any fees attached as you may use these features in the future.
What features does the loan offer?
Loan features can offer plenty of opportunities to save on long term interest charges. Useful features to look for include:
Flexible repayments – the option to pay a little extra off your loan when you have some spare cash is a must-have. Making additional repayments is an easy way to pay off the loan sooner and save on long term interest costs. Look for a loan that lets you make unlimited extra repayments without penalty. It's also worth checking if you have the flexibility to make repayments weekly or fortnightly rather than just monthly, to fit in with your salary or wage pay days. Ask your lender if you have the freedom to make interest-only payments. This is especially handy if you want to trim your loan repayments for a while as a result of a career break or the arrival of a new baby.
Redraw – this lets you withdraw any additional payments made on the loan, providing a useful source of emergency cash. Look for a loan offering free redraw that you can use at any time and arrange either over the phone or online.
Flexible rate options –Look for a lender that lets you switch between variable, fixed and split options at no extra cost. It lets you manage your loan in line with interest rate movements.
Portability – The ability to take your loan with you when you move lets you save on refinancing costs further down the track.
Salary payments paid straight to your loan – Ask your lender if wage or salary payments can be made direct to your loan account. Along with convenience, it can reduce the long term cost of the loan.
What other benefits does the loan offer?
Additional options like a repayment holiday can be useful if you're planning a career break after the arrival of a new baby. Or you may be able to make interest-only repayment for a set period, freeing up cash to use elsewhere.