COVID-19: A quick guide to getting relief on your personal loan
With new data from the Australian Bureau of Statistics (ABS) showing a 3% increase in the number of Australians that are currently out of a job in April 2020 compared to March 2020, many Aussies are doing it tough in the current Coronavirus climate.
As a result, we’ve seen many banks and lenders come out with new financial support options over the past few weeks which aim to assist customers who are experiencing financial hardship as a result of the economic fallout of the COVID-19 outbreak.
Financial support for personal loan customers:
With regards to personal loans, so far we’ve seen a number of lenders offer reduced interest rates, fee waivers and deferred loan repayments to assist borrowers during this time.
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Now, this all sounds great, but be aware that some of these options may also have a downside.
Repayment relief & interest capitalisation:
When applying for repayment relief, what you might not know is that by freezing your personal loan repayments, depending on the lender, you could potentially be hit by interest capitalisation further down the track.
To put it simply, many lenders have been adding on ‘interest capitalisation’, which means that the interest you would’ve paid had your repayments not been frozen is then added to the principal of the loan, so you’d wind up paying interest on your unpaid interest too.
In other words, pausing your loan repayments today could mean that you have a bigger repayment to make at the end of the loan freeze period.
So if you’re thinking of contacting your lender to apply for repayment relief, consider the following first:
1. Can I afford to pay my loan repayments?
If you can afford to continue making your regular repayments, then do so. But don’t forget to shop for the best deal.
2. How competitive is my current interest rate?
Before you go out and apply for repayment relief, first, consider the different options available to help reduce the cost of your loan. If you’re currently feeling the burn of a high interest rate, then you could potentially save stacks by refinancing to a loan with a lower rate as you’d reduce your interest costs and lower your monthly repayments.
Hit up our refinance personal loans comparison table to see what’s out there, then use our personal loan refinance calculator to work out how much you'd save by switching to a better deal. If it all checks out then it might be time to make the switch!
3. What happens when the relief period ends?
If you’re seriously thinking about applying for repayment relief on your personal loan, then be sure to check out all the details before making your decision. You could find that your bank increases your monthly repayments or extends the life of the loan.
So, unless you’re prepared to risk being caught out by a nasty surprise, make sure you find out exactly what the go is once the repayment relief period ends. Remember, there could be other financial relief options available, so check with your bank to find out what they offer.
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If you do wind up applying for repayment relief, try to save the money that would’ve normally gone towards your loan repayments rather than spending it. That way you’ll have some money set aside to cover future repayments when the relief period ends, and if for nothing else, then you’ll have some extra savings up your sleeve.
For example, using our personal loan repayments calculator, we found that the estimated monthly repayment amount for a $15,000 personal loan paid over 3 years with a 9% interest rate would be $477. If you saved just half that amount each month, then in a 3-month relief period you could save $705. By saving the full amount you’d have an extra $1,431 to add to your savings stash!
Visit our COVID-19 hub article so you can stay in the loop and learn everything you need to know about coronavirus and your finances. Or, head over to our personal loans section where you can keep up with the latest news, read our informative guides and compare personal loans today.