So, you’re ahead of the game? High five!
Making extra repayments on your personal loan is not only admirable, it could also mean you’ll repay your loan earlier and save a chunk of money on interest.
But if circumstances change along the way, you might need some extra funds. That’s where your redraw facility comes in. If your personal loan has a redraw facility, you can access the additional repayments for your own use.
Best of both worlds.
One advantage of a redraw facility is that it allows you to pay down your personal loan which will also lower the amount of interest you have to pay, while allowing you access to any extra repayments if you need them.
What’s the catch?
First, you’ll need to check whether your personal loan includes a redraw facility as part of its conditions. Usually, personal loans with a variable rather than fixed interest rate offer a redraw option.
Keep in mind, redraw facilities are designed for occasional use only and you can only access those extra repayments over and above the monthly required amount. Your lender might also need you to make a certain number of additional repayments before you’ll be permitted to redraw the funds.
Also, be aware that you may be hit with a fee if you redraw the money, so it’s a good idea to check with your lender before you proceed.
What’s the alternative?
If you find yourself in a situation where you need to redraw more funds than you have available, or you’re concerned about being stung with a redraw fee, you might want to consider refinancing your personal loan instead.