Most conversations about refinancing start with the new repayment. The more useful starting point is the old loan: what exactly would it cost to leave it?
General information only. This is not personal advice, and every contract is different.
Balance versus payout
The balance on your latest statement is a snapshot of what you owe on a particular day. The payout figure is what the lender will accept to close the account on a specific future date. It may include:
- the remaining principal,
- interest up to the payout date,
- early termination or break costs (if your contract has them),
- any unpaid fees or charges, and
- in some contracts, a portion of future interest or charges.
The only way to know is to ask. Request the payout figure in writing, ask for the date it is valid until, and ask the lender to break it down.
Your contract is the rulebook
Dig out the original paperwork. Look for words such as "early termination", "prepayment", "payout", "break cost" and "fees". If the language is dense, a licensed professional or your accountant can help you read it. Nothing on this site is a substitute for that.
Costs on the other side
A new loan comes with its own costs:
- establishment or application fees,
- ongoing account fees,
- possible valuation or inspection costs for the asset,
- stamp duty or registration in some situations (rules vary by state and territory).
Add these to the payout figure and you have the entry fee for switching.
Put it on one page
Draw two columns.
| Keep current loan | Refinance | |
|---|---|---|
| Remaining repayments | ||
| Total still to pay | ||
| One-off cost to switch | none | payout extras + new fees |
| Total outlay over remaining period |
If the refinance column has a lower repayment but a higher total outlay, that is not automatically wrong. You might be paying for breathing room. But it should be a choice you make with open eyes, not a surprise discovered after signing.
Illustrative example only: dropping a repayment by $150 a month sounds appealing. If extending the term adds 18 months, you will make 18 additional payments. Multiply and compare before deciding.
Check the comparison rate and the fine print
A lower advertised rate does not tell the whole story. A comparison rate is designed to include most fees and charges, though not all, and is only a guide. ASIC MoneySmart has free information on understanding loan costs.
Ask the tax question
How your current finance and any refinance are treated for tax purposes depends on the structure and your situation. Take the numbers to your accountant, and see the ATO's small business pages at ato.gov.au.
When it can make sense
Owners sometimes refinance when circumstances have changed: the business has traded longer, the asset is better understood, or a different structure fits the cash flow better. Whether it makes sense for you depends on the numbers above and your wider situation.
If you would like to see what options might exist, you can start a free, no-obligation enquiry. Any outcome is subject to lender criteria and approval, and nothing is guaranteed.
Your first step this week
Ring your current lender and ask three questions: what is the payout figure for a date a few weeks away, what is in it, and is there anything in my contract that affects an early payout? Put the answers in writing. Then you can compare properly.
