How personal loan redraw works

By   |   Verified by David Boyd   |   Published 16th August 2021

  • Did you make additional payments to your personal loan but now need that money back?
  • Learn how a personal loan redraw works and whether you have better options.
  • Find out the pros and cons of paying more and redrawing those funds if needed.

Making repayments on your personal loan over the minimum required amount can help you repay the loan faster and save on interest. But if the unexpected happens and you need fast access to cash, a personal loan redraw facility can give you some peace of mind.

If this is a new concept to you, this guide will explain how it works.

What is a redraw facility?

A redraw facility is a service that gives borrowers the possibility to access any extra payments made over the minimum required amount.

Redraw is generally only possible if you have a variable rate loan.

Although personal loan redraw terms can vary from one lender to another, you will generally be able to access those funds almost instantly and use them as you wish.

Most lenders don’t charge a redraw fee. However, the interest on your loan will be recalculated and you may lose the saved interest.

How it works

The redraw principle is fairly simple. As long as your loan allows for flexible payments, the lender may give you the possibility to redraw, at a later date, any money you’ve paid over the minimum amount.

For instance, if your monthly instalment is $100 but you decide to pay back $200 each month, you’ll reach the end of the year with $1,200 that you can redraw and use for other purposes. For instance, you could use the redrawn money for:

  • Booking a holiday
  • Buying a new car
  • Home improvements
  • Education
  • Medical bills

If your loan has a redraw facility, the money available to redraw will be shown in your online account or bank app. Most banks even allow you to request a redraw directly from your banking account. There may, however, be a limit on the minimum amount that you can redraw.

Pros and cons

Like everything else, redraw facilities come with pros and cons.

Pros

  • Peace of mind. In some ways, a redraw facility works like a savings account. You’ll have quick access to funds whenever you need it.
  • You can pay out your loan faster. Personal loans with a redraw facility give borrowers the possibility to make additional payments and pay off what they owe faster.
  • Potential tax benefits: Money stored in a redraw account doesn’t earn any interest, and thus it isn’t considered taxable income.

Cons

  • There could be a minimum or maximum redraw amount.
  • You may lose the interest benefit you gained. Interest on your loan may be recalculated.
  • Redraw facilities may not be available on secured, fixed-rate, or interest-only loans.

Redraw policy by bank

Here is how much you can redraw at each of these major lenders.

ANZNo minimum or maximum amounts.
BankSAAvailable if you’re at least $500 ahead of your payments.
Bank of MelbourneAvailable if you’re at least $500 ahead of your payments.
CommBankNo minimum or maximum amounts.
Jacaranda FinanceNo minimum or maximum amounts.
MoneyMeNo redraw facility, but they offer loan top-ups.
MoneyPlaceNo redraw facility.
NAB$1 minimum redraw.
Society OneNo redraw facility.
St.GeorgeAvailable if you’re at least $500 ahead of your payments.
WestpacNo minimum or maximum amounts.