What is a redraw fee on a car loan and how does it work in Australia?
A redraw fee is a fee charged by a lender when a borrower accesses funds that they have previously repaid on their car loan. Essentially, it’s a fee for using your own money.
In Australia, a redraw facility is a feature offered by many car loan lenders. This feature allows you to make extra payments on your loan, which reduces the amount of interest you pay over the life of the loan. If you need to access those extra payments for any reason, you can do so using the redraw facility.
However, most lenders charge a redraw fee when you use the redraw facility. The fee can be a flat rate, such as $50 or $100, or it can be a percentage of the amount you redraw, such as 1% or 2%.
So, how does it work in practice? Let’s say you have a car loan of $20,000 with a redraw facility. Over the course of a few months, you make extra payments totaling $2,000. You then find yourself in need of some extra cash, so you decide to use the redraw facility to access that $2,000.
If your lender charges a flat rate redraw fee of $50, then you will have to pay that fee to access the $2,000. If your lender charges a percentage redraw fee of 2%, then you will have to pay a fee of $40 to access the $2,000.
It’s worth noting that not all car loan lenders charge a redraw fee. Some lenders offer a free redraw facility as part of their car loan package. However, these loans may come with other fees or higher interest rates, so it’s important to compare the total cost of different car loans before making a decision.
In summary, a redraw fee is a fee charged by a lender when you access funds that you have previously repaid on your car loan. It’s important to understand the redraw fee and any other fees associated with your loan before signing on the dotted line. By doing so, you can ensure that you are getting the best car loan for your needs and budget.
What is a redraw fee on a car loan and how does it work in Australia? Speak with a qualified broker today!
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