Refinancing for financial freedom

Debt consolidation is a powerful tool for borrowers – and one that brokers should be adding to their arsenal too. MPA talks to Siobhan Williams of Pepper Money, who explains more

Refinancing for financial freedom

MPA: What are some of the common features of debt consolidation via a mortgage?

Siobhan Williams: There are a few different situations in which debt consolidation loan can help: such as paying off solicitor bills, business and tax debts or credit card debts, for example. If a customer is having di culty keeping track of their debts, consolidating them all and refinancing their mortgage could help them get things back under control.

By rolling all debts into one, a customer could increase their cash flow by getting a lower overall interest rate and see a reduction in fees and charges as well as the cost of maintaining multiple debts.

Of course it’s critical that brokers do their due diligence with clients, as this approach may not be suitable for their individual circumstances. As with any loan, a customer should not be recommended an option that would leave them worse off.

“From a customer standpoint, if I’m walking into a broker’s office, it’s because I need help” Siobhan Williams, Pepper Money

MPA: How can refinancing offer benefits to borrowers?

SW: Simply seeing an improvement in their regular cash flow is a relief for many borrowers. It can provide immediate relief and also allow them to revisit future goals that they haven’t been able to focus on in the past. There are many different borrowers who may be looking to consolidate their debts into a mortgage – from mums and dads struggling to keep up with repayments and high interest rates, all the way through to self-employed borrowers who are looking to tidy up a mix of business and personal debts. Sometimes it’s done in advance of actually purchasing a property, too. Pepper Money has helped some first home buyers consolidate their unsecured debts to improve cash flow and fast-track their savings journey with the goal of getting into the property market.

Lending by the numbersMPA: How can brokers best propose debt consolidation as a solution for existing and new clients?

SW: From a customer standpoint, if I’m walking into a broker’s office, it’s because I need help. My expectation is that the person about to help me will understand the market and how they could provide a solution for me. So, fundamentally, there is no difference in how a broker would approach offering a debt consolidation loan to a customer compared to any other loan.

Of course, refinancing through a debt consolidation loan isn’t always the first thing on the client’s mind either – some will have never considered it at all. If the customer’s short-term objective is to improve cash flow, then the broker may well talk through options that could meet this need and compare the current outlay on their unsecured debts to a proposed new repayment amount consolidated into their mortgage.

The solution offered by the broker may be at a slightly higher interest rate than the customer has seen advertised by major lenders, leading them to focus on that point. When this happens, Pepper’s Five Step Process can assist the broker in helping the customer accept the solution by showing them how their immediate goal of improving cash flow may be met by the alternative being offered.

Looking at it from a broker’s perspective, you’re still applying the same line of enquiry in relation to the borrower’s requirements, objectives and financial situation. Those enquiries identify both the short- and longer-term needs of the borrower. Often, improving their cash flow in the short term will help them achieve their longer-term goals at a faster pace.

MPA: How can recommending debt consolidation complement other areas of the broker’s relationship with their client?

SW: Debt consolidation offers a positive outcome on a number of fronts, because it means debtors are able to free up their cash flow more effectively. If it’s handled correctly, everyone in the process benefits. From a broker perspective, customers who benefit from debt consolidation loans can go on to rank among your best advocates.

At Pepper Money, we often get feedback from brokers demonstrating how grateful he customer is and how it has changed their situation. A story often told is an experience from a couple of years ago – an extremely grateful customer sent their broker a jar of all of their credit cards cut up into tiny pieces, thanking them for what they had done by getting them out of the debt they were in. It’s a gesture that speaks volumes about the role brokers have to play in the process and the positive impact they can have on people’s lives as a result.

“Simply seeing an improvement in their regular cash flow is a relief for many borrowers” Siobhan Williams, Pepper Money

MPA: Do you think we’ll continue to see an increased emphasis on debt consolidation post-COVID?

SW: It’s going to be interesting to see how the landscape shifts into 2021. There’s no question the pandemic has had an impact on people’s finances and accordingly increased the likelihood of debt consolidation loans being considered by many customers. Australia isn’t alone in seeing a reduction in people’s variable incomes, which has placed pressure on household income. Customers are reviewing their spending habits and looking for ways to improve their cash flow. They’re also becoming increasingly aware of comprehensive credit reporting, the impact it has on getting finance, and the importance of paying debts on time, so there’s added incentive on that front.

MPA: What role do alternative lenders play in the refinancing process?

SW: Broadly speaking, I think alternative lenders have much the same role to play as they would in any other loan situation where our services are required. Traditional banks have grown increasingly conservative in their risk appetite and are therefore more restrictive around the type of borrower they’re willing to lend to. Products have also become more rigid to align with these standards. Refinancing isn’t an exception to that, so many people are openly looking elsewhere for their financial solutions.

Of course, this isn’t to say that people only use alternative lenders due to not fitting in with the big banks. In some cases, either they or their brokers have used our services previously, and they’re aware that their needs will be able to be met. We also find that borrowers and brokers alike enjoy the comparative flexibility of our products; irrespective of your existing financial circumstances, that’s an important consideration.

Pepper is Australia’s number one alternative lender, and we live our mission: to help people succeed. For nearly 20 years, we have been providing a variety of home loan solutions, including some the banks won’t offer. We also provide car loans, personal loans, loans for professional equipment, and commercial loans. We’re a well-established global credit provider with specialist experience in our core disciplines of consumer lending and asset servicing across the residential and commercial property sectors. Our offices span Australia, New Zealand, Asia and Europe – including Ireland, the UK, Spain and South Korea. For more information on Pepper Money home loan solutions and broker tools, such as the Pepper Product Selector and Five Step Process, head to the Pepper Money broker portal at