Question: We have a 10-year loan for some new buildings on my farm with a balance of €120,000. The buildings were completed two years ago and we’ve been working away at paying the loan back each month.
In the last few months, the interest rate has increased which has left me questioning our position. While we can still afford the repayments at the minute, any further increases would put us under pressure.
Should I stay with my bank and wait for the rate to return to where it was? Or is it worth my while changing banks?
I know there’ll be time and money involved in switching. I’m wondering if the switching effort is worth the possible savings?
Answer: In an industry where margins are tight and uncertainties loom, securing the best possible loan terms can make a big difference to your bottom line. Let’s talk about when it makes sense to refinance and when it doesn’t.
Refinancing allows you to change your loan details, such as the interest rate, monthly payment and repayment term. Reasons to refinance a business loan are to reduce its overall cost or monthly payment.
If you can refinance for a lower interest rate, it will typically help you save money in the long run. Lower rates mean less interest will accrue over the loan’s term.
You’re right to try and get ahead of that by investigating your options.
Noreen Lacey, Head of Banking at Ifac Ireland
What to consider
1. Research alternative options
Explore the financial market to identify potential lenders offering better terms.
Institutions that specialise in agricultural loans, such as Bank of Ireland, AIB or the Credit Union’s Cultivate loans, may offer more tailored solutions to meet your needs.
You mention that your current loan is with a bank. When researching, go broad and consider both traditional banks and credit unions, as well as online lenders for competitive rates.
2. Compare interest rates
Interst rates are one of the most critical factors to consider when switching loans – even a small difference in rates can translate into significant savings over the life of the loan.
Use online loan calculators to compare the total cost of different loan options. Most financial institutions quote standard interest rates on their websites so check these out first.
3. Consider term and repayment schedule
While a lower interest rate is desirable, also consider the loan term and repayment schedule. A longer-term loan with lower monthly payments could result in higher overall interest costs.
Conversely, a shorter-term loan may have higher monthly payments but could save you money in the long run.
Choose a loan term that aligns with your financial goals and cash flow projections.
For example, our table (see table 1) outlines two scenarios. Take for example that your current interest rate is 7.5% on a loan balance of €120,000 over a 10-year term.
Compare this to switching to a rate of 6.5% It may be just 1% but it can make a big difference.
Refinancing your current loan at a new interest rate of 6.5% results in slightly lower monthly repayments but will save you €7,421 over the loan’s term.
Let’s have a look at the impact of extending the loan term and reducing the interest rate (see table 2).
Extending the loan term to 12 years at a lower interest rate of 6.5% results in a lower monthly payment but higher total interest paid over the life of the loan.
You would repay €2,201 more in interest compared to the original loan.
4. Factor in additional costs
Additional costs may include application fees, valuation fees, legal costs, title searches and any penalties for paying off your current loan early.
Calculate the total cost of switching loans to ensure that the potential savings outweigh the expenses.
An unsecured loan will have less additional costs than a secured loan (where land, for example, is taken as security for the borrowing). This will normally have a minimum legal fee of €2,000, but could be higher.
5. Review terms and conditions
Before finalising any agreements, carefully review the terms and conditions.
Pay close attention to clauses regarding interest rate adjustments, prepayment penalties and default provisions.
Ensure you fully understand your obligations and rights. Don’t get caught out by the small print.
6. Seek professional advice
If you’re uncertain what to do, seek advice from financial professionals specialising in agricultural lending.
They can help you assess your options, crunch the numbers, and make an informed decision.
Noreen Lacey is Head of Banking at Ifac which is the professional services firm for farming, food and agribusinesses
Take these steps if you decide to refinance:
Check with your current bank they might have a better deal. Get your documents ready: if your current bank can’t help, collect all the paperwork you’ll need to refinance. Fill out the forms: usually, it’s an agri-loan application form, but depending on your farm set-up, there might be other forms too. Wait for the bank’s response.Review the offer carefully: this includes interest rates and repayment terms. Read more
Bank of Ireland offers loans of €500,000 to west Cork milk suppliers
Bank of Ireland launches new Enviroflex partnership with Aurivo Co-op
Question: We have a 10-year loan for some new buildings on my farm with a balance of €120,000. The buildings were completed two years ago and we’ve been working away at paying the loan back each month.
In the last few months, the interest rate has increased which has left me questioning our position. While we can still afford the repayments at the minute, any further increases would put us under pressure.
Should I stay with my bank and wait for the rate to return to where it was? Or is it worth my while changing banks?
I know there’ll be time and money involved in switching. I’m wondering if the switching effort is worth the possible savings?
Answer: In an industry where margins are tight and uncertainties loom, securing the best possible loan terms can make a big difference to your bottom line. Let’s talk about when it makes sense to refinance and when it doesn’t.
Refinancing allows you to change your loan details, such as the interest rate, monthly payment and repayment term. Reasons to refinance a business loan are to reduce its overall cost or monthly payment.
If you can refinance for a lower interest rate, it will typically help you save money in the long run. Lower rates mean less interest will accrue over the loan’s term.
You’re right to try and get ahead of that by investigating your options.
Noreen Lacey, Head of Banking at Ifac Ireland
What to consider
1. Research alternative options
Explore the financial market to identify potential lenders offering better terms.
Institutions that specialise in agricultural loans, such as Bank of Ireland, AIB or the Credit Union’s Cultivate loans, may offer more tailored solutions to meet your needs.
You mention that your current loan is with a bank. When researching, go broad and consider both traditional banks and credit unions, as well as online lenders for competitive rates.
2. Compare interest rates
Interst rates are one of the most critical factors to consider when switching loans – even a small difference in rates can translate into significant savings over the life of the loan.
Use online loan calculators to compare the total cost of different loan options. Most financial institutions quote standard interest rates on their websites so check these out first.
3. Consider term and repayment schedule
While a lower interest rate is desirable, also consider the loan term and repayment schedule. A longer-term loan with lower monthly payments could result in higher overall interest costs.
Conversely, a shorter-term loan may have higher monthly payments but could save you money in the long run.
Choose a loan term that aligns with your financial goals and cash flow projections.
For example, our table (see table 1) outlines two scenarios. Take for example that your current interest rate is 7.5% on a loan balance of €120,000 over a 10-year term.
Compare this to switching to a rate of 6.5% It may be just 1% but it can make a big difference.
Refinancing your current loan at a new interest rate of 6.5% results in slightly lower monthly repayments but will save you €7,421 over the loan’s term.
Let’s have a look at the impact of extending the loan term and reducing the interest rate (see table 2).
Extending the loan term to 12 years at a lower interest rate of 6.5% results in a lower monthly payment but higher total interest paid over the life of the loan.
You would repay €2,201 more in interest compared to the original loan.
4. Factor in additional costs
Additional costs may include application fees, valuation fees, legal costs, title searches and any penalties for paying off your current loan early.
Calculate the total cost of switching loans to ensure that the potential savings outweigh the expenses.
An unsecured loan will have less additional costs than a secured loan (where land, for example, is taken as security for the borrowing). This will normally have a minimum legal fee of €2,000, but could be higher.
5. Review terms and conditions
Before finalising any agreements, carefully review the terms and conditions.
Pay close attention to clauses regarding interest rate adjustments, prepayment penalties and default provisions.
Ensure you fully understand your obligations and rights. Don’t get caught out by the small print.
6. Seek professional advice
If you’re uncertain what to do, seek advice from financial professionals specialising in agricultural lending.
They can help you assess your options, crunch the numbers, and make an informed decision.
Noreen Lacey is Head of Banking at Ifac which is the professional services firm for farming, food and agribusinesses
Take these steps if you decide to refinance:
Check with your current bank they might have a better deal. Get your documents ready: if your current bank can’t help, collect all the paperwork you’ll need to refinance. Fill out the forms: usually, it’s an agri-loan application form, but depending on your farm set-up, there might be other forms too. Wait for the bank’s response.Review the offer carefully: this includes interest rates and repayment terms. Read more
Bank of Ireland offers loans of €500,000 to west Cork milk suppliers
Bank of Ireland launches new Enviroflex partnership with Aurivo Co-op
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