You’ve probably seen the ads everywhere. You know the ones – banks and utilities offering discounts to new customers while simultaneously upping the price for existing clients (some of whom have been with the same company for years). Although it can be a hassle to change services, loyalty tax could be costing you hundreds or thousands of dollars each year. If you want to know more about loyalty tax and how you can avoid it, read on.
What is loyalty tax?
Loyalty tax isn’t a hidden cost the ATO pins you with later—it actually has nothing to do with the ATO. Rather, it is a ‘tax’ or premium paid by loyal customers. You’ll often see this in the form of new customer offers or discounts that aren’t extended to existing customers. These premiums are commonly found in services like banking, energy, gas, insurance and credit cards, to name a few. Loyalty tax – or this higher premium – is put in place by businesses who don’t believe their customers will consistently check their rate for changes – they’re counting on you ‘setting and forgetting’ your product or service.
How can I avoid loyalty tax?
The good news is loyalty tax is avoidable. A couple of ways you can avoid loyalty tax include the following:
Request a lower rate
The first and generally easiest way to combat loyalty tax is to request a lower rate with your service provider. Call the company directly and request a lower rate or repayment. If they decline, advise them you will shop around for a lower rate or mention a cheaper advertised rate you have seen. Another way to gain a lower rate is to speak with your financial advisor. Your advisor has the knowledge and access to a range of lenders to get you the best deal on offer. Sometimes, they can even access offers that aren’t on the market. When requesting a lower rate, having a good credit score and being an exemplary borrower may convince your lender to approve your request. Your Inovayt financial advisor can assist you in ensuring your finances are in a favourable position.
Refinance
If you’re a homeowner, refinancing your current loan may be one way to significantly reduce how much interest you’re paying. If you’ve been with the same lender for two or more years and haven’t refinanced or your circumstances have changed, it’s time to look at refinancing. While it can be a hassle changing lenders, take advantage of businesses offering significant discounts for new customers, which can save you thousands. There are a few other benefits of refinancing. These include consolidating your debts, changing your loan type and improving your credit score. When evaluating your interest rate, don’t discount the power even the smallest decrease can save you. For example, if your current home loan is $500,000 with 30 years remaining and an interest rate of 6.61 per cent, by switching to an interest rate of 6.01 per cent, you could save up to $171,770 throughout your loan. Want to know how much you could save? Try our free refinancing calculator.
Check your financial health
Regular financial checkups are a must to ensure you’re not paying too much. Check all of your current plans and subscriptions frequently to see if there are any price increases. Remember to check the following:
Home loan
Car loan
Home and car insurance policies
Credit cards
Subscriptions (such as streaming services, gym memberships etc)
Bank savings accounts
Gas and electricity
Health insurance
Phone and internet plans
Once you‘ve got your current rate, look at the rate they’re offering new customers to see if it’s the same as what you’re paying. This is the time to look at their competitors to see what they’re offering and if you can use this as leverage for a deal. Making this a monthly habit is a fantastic way to save money. With subscriptions and services commonly rolling over annually, it’s easy to neglect or put your financial reassessment in the ‘too hard’ basket. Businesses often rely on the idea that most people ‘set and forget’ their products and policies, so it’s important to set aside a couple of hours each year and set a reminder annually so you don’t forget.
How do I know if I’m paying loyalty tax on my mortgage?
As it’s not a tax that will show up on your bank statement or credit report, it can be difficult to know if you’re paying a premium or loyalty tax. However, there are some key indicators that you could be paying too much. These include:
Your loan or rate is out of sync with the market value.
You’ve been with a bank for more than four years on a variable rate.
If you said yes to either of these, there’s a good chance you’re too much.
Can an Inovayt finance professional help me with loyalty tax?
At Inovayt, our expert team is here to make sure you’re not spending more than you should. When it comes to banks and services, businesses often charge extra to loyal customers while offering discounts to new clients. Ensure you’re not getting stung by loyalty tax. Speak to an Inovayt financial advisor today.
