How to alter the repayment system of my Business Loan?

Repayment means repaying previously borrowed money to business lenders that they have advanced. It can be a business loan, a mortgage, or an short term loan. The repayment amount can include both principal and interest-only business loans. There are different repayment options available through different types of lenders.

How to calculate the repayment amount?

Loan repayments of business finance Australia depend on the loan amount, term, and interest rate. Periodically recalculate the loan repayment amount so the loan can be repaid within the remaining loan term. You can check the repayment amount, type, and frequency at any time with the lender.

Reason for change in repayment amount

During the term of the interest-only business loan, it may be necessary to adjust the repayment amount. You may need to change your repayment amount to pay off the loan within the remaining term.

For example, if you increase your repayments due to an interest rate increase, if your loan is not a fixed rate loan, your payments need to be recalculated to ensure the loan is repaid within the original loan term. Traditional lenders will want to ensure that the increase in the rate will not impact the final term of the loan. They will advise you of

• New required repayment amount
• Effective date
• Any other terms you will need to make

If you have any questions about your new repayment amount or want to check your credit against these changes, contact your account manager if available. Your repayments change as interest rates rise. If the interest rate increases, the new interest rate will be applied from the interest rate application date. Repaying the principal and interest does not immediately increase the repayment amount.

For interest-only payments, interest will increase from the effective date of the interest rate change. The business lender will update your direct debit, and you must ensure that you have sufficient funds in your direct debit account to cover the increased amount. With a fixed interest rate, the repayment amount remains the same until the end of the fixed period.

How will my repayment amount increase?

• If you make principal and interest payments, you will receive a notification email at least 30 days before your payment increases. Traditional banks will send you a letter to notify you of any change.
• This notice includes a new amount that will increase your repayment amount. This amount is subject to change from when they notify you to the effective date of the change but will not exceed the maximum amount disclosed by the lender.
• Business lenders however can offer you fixed interest rates that will not change throughout the term of the loan along with the capitalised options where you will have no repayments.

What happens after the required repayment amount increases?

If your loan is with a traditional bank lender and you have direct debits, update them to meet your repayment obligations. You must ensure enough funds are in your direct debit account. If you make a manual payment, you must increase the repayment.

Why is my repayment amount not increasing?

If you have enough outstanding payments to cover your current expenses or have already paid more than you need, you may not need to increase your scheduled payments. However, if the circumstances of your loan change, you may request an increase at a later date with at least 30 day’s notice period. If you have a variable rate of business finance Australia with a traditional lender and are paying principal and interest, you can:

1. Increase your repayments to pay off your loan sooner and pay less interest over time.
2. Reduce your repayments to free up cash, assuming that interest rates have been lowered or that you have previously made additional repayments and can now pay off your loan in favor of it. Remember that reducing your repayments decreases your available repayment balance and increases the amount of interest paid over the life of the loan.

End Takeaway

So, it is possible to change loan repayments. The best idea is to contact your bank and understand all the scenarios. If you research well about the lending institutions before applying, flexibility will never be an issue. Always remember that by using a private lender instead of a traditional bank you will have less interest rate changes as Private lenders offer fixed rate loan products. They can also offer no payments through the term of the loan.