What you need to know before you defer your loan repayments during COVID-19
Deferring your loan repayments can ease financial strain, but what conditions apply?
If you've been impacted by COVID-19, you might be looking into different ways you can reduce your expenses. One big expense is loan repayments. Banks and lenders have announced measures to help people and businesses with loans get through the coronavirus period, but it's important to know the conditions that apply to the measures and whether they are the best option for you.
In this guide, we will go through what measures have been announced regarding loan repayments, what conditions are attached and how to decide if they are right for you.
What measures have banks and lenders introduced for loans?
The Australian Banking Association and the banks are working together during the crisis to implement the Small Business Relief Package. This package will allow principal and interest repayments for loans to small businesses that have been affected by COVID-19 to be deferred. The package applies to all term loans and retail loans up to $3 million and will be available to loans from all ABA member banks who have agreed to participate.
Banks are offering their customers individual support if they have been impacted by the coronavirus crisis. For example, NAB is letting its customers defer repayments for up to six months while Westpac is letting customers defer repayments for up to three months. You can find out more information on mortgage assistance during COVID-19 here.
Similar to home loans, banks are offering their customers support through individual policies. This includes fee waivers, debt consolidation, interest-only repayments and more. You can find out more about individual bank policies on personal loan support during coronavirus here.
What is the impact of deferring your loan due to COVID-19?
This differs between lenders, but generally, you will be impacted by the following if you choose to defer your loan repayments:
- Your repayment term will be longer. If you defer your loan repayments for six months, banks are generally adding six months onto the end of your loan term. So, it will take you longer to repay your loan.
- You will pay more in fees and interest. While you aren't paying fees and interest during the deferral period, most banks and lenders have said they will add these deferred fees and interest payments back onto the loan when you start making your repayments again. Also, because your loan term is longer, you will be paying interest and fees for longer.
What conditions apply to the deferral of loans?
|ANZ||Home loans||Interest will continue to be capitalised during the six-month deferral period. After this, you can increase the loan amount or extend your loan period by six months.||More info|
|ANZ||Business loans||Interest is capitalised during the six-month deferral period.|
|CommBank||Business loans||Fees and interest payments are added to the loan after the six-month deferral period.|
|CommBank||Home loans||More info|
|NAB||Business loans||Interest will continue to accrue during the six-month deferral period.|
|NAB||Personal loans||You can reduce your repayments but interest will continue to accrue and you'll be required to repay it over the remaining term.||More info|
|NAB||Home loans||Interest will continue to accrue during the six-month deferral period. After this period, your repayment amount may need to change so you can repay it within the loan term.||More info|
|St.George||Home loans||After the three-month deferral period, the deferred interest and principal payments will need to be paid off during the remainder of your loan term.||More info|
|St.George||Business loans and credit cards|
|Westpac||Business loans and credit cards||More info|
|Westpac||Home loans||Deferred interest will be capitalised and your principal will need to be paid off after you resume your repayments.||More info|
How to decide whether to use a coronavirus support measure
The ongoing COVID-19 crisis is stressful and the measures introduced by banks can be a welcome financial relief. However, there are a few things to consider before deciding whether to take them on:
- Can you afford higher loan repayments? Some banks, as detailed in the table above, require that you cover the missed fees and interest payments by increasing your ongoing loan repayments. You need to consider whether this will be a feasible option for you at the end of the six-month period.
- How long will it take you to get back on your feet? The loan deferral periods differ between banks, but at the end of these periods, all require that you start making principal and interest repayments again. You should look at your personal or business situation and decide whether making these repayments will be possible.
- Is there another way you can make the repayments? Make sure you have explored all other avenues before considering loan deferrals. There are government grants to help businesses affected by the coronavirus and other cash-flow boosting strategies you can consider.
Need to refinance?
If you're struggling with your repayments, refinancing your loan could be an option. When you choose to refinance your loan, you may be eligible for a lower interest rate. This may decrease your monthly repayments over the entire loan term.
Compare your loan refinance options below.
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