A recent report by the Reserve Bank of Australia revealed that Australians are spending as much as $37,000 in extra interest in a full loan term. That’s because of loyalty tax – something that most borrowers have no clue about but pay nevertheless.
The sneaky loyalty tax leaves as many as three of four borrowers feeling angry and duped.
What is Loyalty Tax?
A loyalty tax is implemented by some lenders to long-term borrowers, having them pay an overall higher rate than new loans, as confirmed by the RBA. It happens because the banks are confident that you’re no longer paying attention to your bills, and they don’t offer these to new borrowers to better win them over with lower rates.
The average gap between new and long-term borrowers rates goes as high as 0.46%. While that seems a small gap, it’s equivalent to as much as $37,462 for a loan amount of $400,000 over a 30-year period.
Borrowers Feel Duped and Angry
Research reports that about 91% of customers ask lenders to implement the same rate for new and existing loans. Roughly 82% felt betrayed by their lenders, 74% felt angry, and 72% were mad at such sneaky practice.
Transparency is at the core of the trust and lending industry. That’s why many borrowers felt the irony of this practice, while it also highlighted the opportunity for transparent companies with a legible value proposition.
Staying Away from Loyalty Tax
The Australian Competition and Consumer Commission (ACCC) reported helpful recommendations for borrowers to avoid loyalty tax and other unfair practices. However, it still remains far from making a dent on loyalty tax and lenders who charge it to their loyal customers.
Moreover, about 56% of borrowers claim they feel trapped in their existing lender, while 36% of people openly asked their bank to decrease their interest rate but were denied. But since competition is increasing within the industry, you should acknowledge your power as a consumer and use it to stay away from unfair loyalty taxes.
It’s also worth noting that since rates are falling at all-time low levels, you should keep your money in your pockets and not the banks. Getting educated on the latest state of lending and understanding your borrowing power should also let you negotiate better discounts with your current lender.
If these sound daunting work for you, our mortgage brokers at Plan A Mortgage can lift off some weight off your shoulders and look for the best rates that work for you.
Get in touch with us today!
At Plan A Mortgage, we take care of our customers throughout the lending process, even if that means keeping you away from loyalty taxes. Reach out to us today, and we’ll run you through different financing options that can help you save thousands in interest rates.
Our mortgage brokers will ensure that you’re not falling into unfair schemes from your lender and leverage your loyalty to their advantage.
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