loyalty tax

Is it true that banks are offering cheaper rates to new customers compared to long-standing existing customers?

Recent headlines surrounding the government’s initiation of an ACCC probe into the major banks failure to pass on the full 0.25% cut to official interest rates to borrowers has brought about this interesting topic.

‘The squeaky wheel gets the oil’ is an age-old proverb that does ring true in banking and finance. However, before you go busting down the door of your existing bank demanding a rate cut you would be well advised to understand your current ‘value’ as a borrowing customer. The reason you should do this is so you know your ‘Plan B’ option to refinance to an alternate lender if required. Knowing that you can refinance will help in your negotiation with your current lender.

A few simple checks that you can make include:

1. Understand the current market value of the assets that secure your loan

The ratio of your loan limit to the value of the security is a major factor to any lender assessing your risk. If a property is your primary security then a loan to valuation ratio over 80% can complicate you refinancing to another lender. It won’t necessarily preclude you from achieving a rate cut from your existing lender.

2. Assessing your current income and expenses to calculate your debt-servicing capacity

This is an assessment that is difficult to do yourself given each bank tends to have its own policies and criteria for calculating borrowing capacity. Your finance broker has all the tools to help with this. Having a full understanding of all your commitments and living expenses will put your entire borrowing profile into perspective.

3. Ensure you pay your bills

Whether it’s your credit card, personal loans, home loans, creditors or tax, make sure they are all up to date as your performance in meeting your commitments is increasingly being asked to be proved by all lenders. Your credit activity is now very transparent with the advent of Positive Credit Reporting and the imminent arrival of Open Banking. Keeping your house or business in order is very important.

Where to start

For many people, the concept of borrowing money is very foreign and stressful, yet we all know that borrowing money will often help acquire assets to grow our wealth. A finance broker is the best person to talk to about your current and future borrowing requirements and to simplify the often complex world of banking and finance.