When our customers have us arrange a personal loan for them to purchase cars, boats, motorbikes or caravans we’re often asked if they can make extra payments in addition to the monthly repayments. Fair question. When organising a loan, most people will request a repayment level based on their financial circumstances at that time.
Over the term of the loan, those circumstances may change for the better and people are in a position to pay off more of their loan. The idea being, they will pay it off sooner and the boat, car, motorbike or caravan will be theirs sooner.
The simple answer to the question is that YES, with both Personal Secured Loans and Unsecured Personal Loans you are permitted to make additional payments.
BUT there is a cost-benefit analysis to consider which we will cover off on for you.
In these educational articles, our intention is to present the facts and raise some issues for you to consider. If you feel you require expert advice on your individual situation, we recommend you consult with your financial advisor or accountant.
Analysis: Cost-Benefit of Extra Payments on Consumer Loans
- Both Secured Loans and Unsecured Personal Loans allow extra payments to be made in addition to the scheduled monthly repayments.
- This applies to consumer loan categories: cars, boats, bikes and caravans.
- In making these additional payments you will be paying off the loan before the expiration of the loan term. Some loan types attract what is known as ‘break fees’.
- Break fees are a fee charged by the lender for ending a loan before the fixed loan term.
- Unsecured Personal Loans have a variable interest rate and no break fees. If your loan is an unsecured loan then making extra payments will not attract fees. You pay out the loan earlier, own the goods in full sooner and save money on the interest you haven’t had to pay for that extra time.
- Secured Loans however, do incur break fees, usually minimal. How much? That question we can’t answer in this general forum as the fees will vary across lenders and may vary across different loan types.
- Your lender can provide details on break fees on your specific loan.
- If you know the break fees, you can then do the basic maths to work out what you save on the interest you won’t have to pay by finishing the loan early and decide if there is a significant financial benefit.
- Once you’ve weighed up the options, another consideration is what could you use that extra payment money for? That is your decision.
- If you do wish to make additional payments, contact your lender to ensure you have the correct account details and reference to deposit the additional funds.
Consider Your Loan Structure
While the opportunity to make extra payments, ie additional funds becoming available, may occur at some time through the loan term, it is always advisable to give due consideration to your loan structure at the outset.
When discussing your loan with your Jade Finance consultant, repayment amounts is a key part of the conversation. Asexperienced finance brokers, we have greater flexibility to structure loans to meet individual requirements.
Take time to consider if you should pay more in your repayments from the outset and as such, pay less in total interest and payout the loan earlier and likely avoid any break fees. A higher repayment may be an option worth considering.
As brokers, we provide our customers with significant benefits when structuring a Personal Secured Loan or an Unsecured Loan. While the banks and many finance companies must adhere to their strict internal lending guidelines, Jade Finance has more flexibility.
Our large lender base gives us more options to source your loan and we know which lenders will be more flexible in negotiating loan terms. We work differently and take a proactive approach to sourcing the best interest rates and the best loan terms.
We hope this article has been helpful in answering your questions and if that means we’ve ticked all your decision boxes around a car, boat, bike or caravan loan – give us a call and let’s get your loan process underway.
To discuss consumer loans for cars, boats, bikes and caravans please contact Jade Finance 1300 000 008 for a confidential and obligation free conversation.