Apart from the loan amount itself, the interest charged by a lender on a car loan is the largest component. The interest rate in conjunction with the term of the loan and of course the loan amount determines the total interest chargeable on a loan. With calls from some analysts for the RBA to lift rates, savvy buyers will no doubt be looking for ways to avoid car loan interest rates rises.
It is widely known that interest rates have been at historic low levels for some time. Specifically, the official cash rate as set by the Reserve Bank of Australia (RBA) has been ‘on hold’ at 0.1% since November 2020. The RBA Board cut the cash rate several times in 2020 as a response to stimulate the economy due to the economic effects of the coronavirus pandemic.
The cash rate is the basis from which banks and lenders set their own interest rates for both savings accounts and for loans. So with the rates currently at historic lows and the RBA unlikely to cut that rate further, the only way for interest rates from here on is to stay on hold or go up. The next meeting of the RBA to discuss monetary policy and the cash rate is 1 February 2022.
For buyers looking to purchase new vehicles, securing a fixed interest rate finance while rates are low is a smart way to avoid car loan interest rates rises.
Car Loan Interest Rates
Interest rates on loans and finance can be at a variable rate or at a fixed rate. This can be dependent on a number of factors including the type of loan, the lender, the type and condition of the goods and the lender’s assessment of the loan application.
Most of the discussion around the cash rate scenario does centre on the home loan market. But interest rates on home loans, both the rate and how they are applied, differ from interest rates on motor vehicle finance. If a home buyer secures a fixed rate mortgage, the time for which the rate is actually at that fixed rate may only be a few years of the total mortgage term.
With motor vehicle finance the scenario is different. When a fixed interest rates is applied to a car loan, that rate is in place for the entire term of the loan.
Loans for business motor vehicles are available at both fixed rates and variable rates. A variable rate implies that the interest charged on the loan may increase or decrease depending on what happens with the cash rate and lending interest rates in general
Secured loans, both for personal car buyers and business purchases, are usually at a fixed interest rate. This includes for Secured Car Loan, sole trader car financing, Lease and Hire Purchasing Cars. Jade Car Loans also offers Unsecured Personal Loans which can be used for the purchase of motor vehicles. Unsecured loans may have a fixed or a variable interest rate.
Unsecured loans are typically sought when a lender does not accept the vehicle being purchased as suitable security for loan. This would be determined by the age and condition of the vehicle and possibly the loan amount being requested.
So buyers looking to avoid having the interest rate on their car loan increased over the loan term, will be wanting a car loan with a fixed interest rate.
Advantages of Fixed Interest Rate Car Finance
Securing a fixed business car financing interest rate on a car loan is effectively locking-in that rate for the loan. When rates are low as they are currently, that can be a smart move.
The advantages of locking-in your car loan at a fixed rate are significant and include:-
- The fixed rate provides businesses and individuals with the confidence that their loan repayments won’t change over the loan term. The fixed loan terms in conjunction with the fixed interest rate, calculate out to a fixed repayment each month. The fixed rate ensures that repayment won’t change over the 4, 5, 6 or so years of the finance term.
- Having a fixed outgoing each month allows individuals and households to plan their budget over the years of the loan.
- Businesses can work cash flow around the fixed motor vehicle repayments and plan other equipment investments and business spending accordingly.
- When the RBA does lift the cash rate, which is highly likely by 2024, a car loan which has been secured at a fixed interest rate prior to any increase, will not change.
- The total interest charged on the loan over the loan term remains constant with fixed interest rate loans.
So for buyers looking to avoid fluctuations in their car loan repayments over time, securing finance at a fixed rate will be a priority. For those looking to get in while rates are low, securing that car loan while rates are at historic lows, is even smarter.
Jade Car Loans offers cheap interest rate motor vehicle finance at fixed rates across our loans to allow our customers the benefit of avoiding the impact and additional cost of interest rate rises over their loan term.
Contact Jade Car Loans 1300 000 003 to discuss a fixed rate car loan to avoid interest rate rises over the loan term.
DISCLAIMER: IN REGARD TO MISREPRESENTATIONS AND ERRORS CONTAINED IN THE MATERIAL AS PRESENTED, LIABILITY IS NOT ACCEPTED. THE DETAILS AND CONTENT IS PROVIDED FOR CAR BUYERS AND INDIVIDUALS AND BUSINESS SEEKING FINANCE PURELY AS GENERAL INFORMATION. THIS IS NOT PROVIDED AS THE ONLY SOURCE OF FINANCIAL INFORMATION. ANYONE THAT CONSIDERS THAT NEED FINANCIAL ADVICE ABOUT THEIR SPECIFIC REQUIREMENTS SHOULD SEEK THEIR OWN FINANCIAL ADVISOR.