No redraw fees
If you’re are considering a loan with a redraw facility as a solution that will ease your cash flow, remember to check whether your lender charges for this feature before you make a commitment.
What are redraw fees?
With redraw you can pay extra into your loan and then borrow back some of the funds that you have overpaid. If you think this is a facility you will want to use make sure you choose a loan where there are no redraw fees. Some lenders restrict the amount you can redraw and the frequency with which you can do so. Others charge a fee each time you want to make a withdrawal.
Why do people look for a loan with no redraw fees?
There are a number of reasons why you might want to look for a loan with no redraw fees:
- It gives you the flexibility to make extra repayments and then claw them back without financial penalty;
- Making extra payments will reduce the amount of your debt, however, if you have to pay a further fee each time you redraw a little of this it may well negate any reduction in interest.
What are the pros and cons of loans with no redraw fees?
With loan facilities where there are no redraw fees you can make extra loan repayments when it suits you and then take extra funds when you need them. Should you incur unforeseen expenses this is a very useful feature that gives you peace of mind. With no redraw fees you can continue to reduce your loan amount and still continue to have access to additional funds in your account.
As some redraw facilities charge additional fees for withdrawing and depositing money, you should check your lender’s policy before your commit to a loan arrangement. Remember that some lenders charge these fees straight away or alternatively may permit you to make a certain number of overpayments and redraws every month, free of charge. Always check carefully the terms and conditions of your loan contract for specific information about redraw restrictions, including permitted amounts, frequency of withdrawals and any applicable fees.