The RBA lifted the official cash rate by a further 0.5% at its August Board meeting. This represents the fourth increase in four months, three being at 0.5%. Increasing the cash rate from its historic low of 0.1% where it had been for over 20 months to the current level of 1.85%. While much of the post-rise discussion centres around the home loan market, for our customers the greater significance is likely to be how the rate rise impacts motor vehicle finance.
The latest RBA rate rise did not come as any surprise to either the financial markets, lenders or in fact the wider general public. The ABS released the employment figures in mid-July and the inflation figures later that month. Both of which were significant to the RBA’s rate decisions. Inflation reaching 6.1% when only a few months prior the expectation was for around 4.9%. Unemployment dropping to a 50 year low of 3.5%. Both key indicators for RBA decisions.
The latest cash rate rise will flow-on through lending markets including motor vehicle finance but cheaper rates can still be obtained through Jade Car Loans. We examine the impacts for different types of loans and the options and opportunities available for those seeking vehicle finance to secure cheaper interest rate car loans.
Vehicle Finance Rates: General Overview
The motor vehicle finance market is one of the largest lending markets in Australia. With size comes competition, with a plethora of banks, finance companies, specialist business finance non-bank lenders and car dealers and manufacturers vying for business.
Rates can and do vary from lender to lender. How a lender sets their rates on particular loan products and in specific markets will depend on a number of factors. These include their own guidelines or directives in regard to rates; their outlook for the economy and the finance sector; their exposure to the sector; and where they source their own funding. An assessment of individual loan applications will also determine the car loan interest rate which is offered to specific buyers.
The rates that individual banks and lenders advertise will typically be based on their best or cheapest rate for the purchase of new vehicles and for loan applicants that have a good credit record, unless otherwise indicated. Those planning to apply for finance can assist their prospects by addressing any issues with the credit profile prior to submitting an application.
Interest rates for car finance are also different for personal car loans compared with business vehicle finance. The rate also varies across the different types of business vehicle finance: Sole trader motor vehicle loan, Leasing and Commercial Hire Purchase.
It can be a confusing situation, especially for buyers that only require car loans every few years. Applying for finance is not an activity that all buyers need to address on a regular or recurring basis. Using a broker-style lender such as Jade Car Loans allows buyers to cut through the ‘noise’ and obtain the cheapest interest offer applicable to their individual requirements and circumstances quickly and easily. We have accreditations with multiple lenders which facilitate this level of prompt and professional service.
Rate Rise Scenario
The RBA August rate rise of 0.5% will have an impact on rates that lenders will apply to no doc car loans Australia and other motor vehicle finance. Current car loan holders that secured their loan with a fixed interest rate should not see any change to their loan. A fixed consumer loan for a motor vehicle typically has an interest rate fixed for the entire period of the loan. This is the preferred rate type by Jade Car Loans and applies to our Secured Car Loan. However, Unsecured Personal Loans for the purchase of a motor vehicle can have a fixed or a variable rate. If you have an unsecured loan, contact your lender in regard to a possible rate rise.
Pre-approved car loans are increasingly popular, especially in the recent car market conditions of limited availability. Having finance secured may place a buyer in the box seat when it comes to saying YES to the dealer when a low supply vehicle is found.
While pre-approved loans can be extremely useful for a range of reasons, they are not an insurance policy against a rate rise. Pre-approved loan offers are made for a set period of time. The offer remains firm for that time but if not accepted and acted on, is then susceptible to change. If the loan offer expires and then is later required, it would be re-quoted at the interest rates current at the time.
Interest rates on business vehicle finance products will also likely increase following the RBA’s August decision. However, business operators can consider a number of strategies to minimise the overall cost of their finance:
- Consider the suitability of Chattel Mortgage rather than Leasing as a cheaper interest rate option.
- Vary the finance term to reduce the total interest payable over the loan term.
- Vary the balloon/residual to reduce monthly repayments to more cost-effective and workable levels.
Both private and business buyers can look to reducing the overall cost of their finance by reducing the amount required for the loan. This may be achieved by selected a lesser priced vehicle or by paying a higher deposit to reduce the loan required.
Your Jade Car Loans consultant will be guiding and assisting your through the entire finance process to ensure we secure you the cheapest and most appropriate finance deal, regardless of the current rising rate scenario.
Contact Jade Car Loans at 1300 000 003 to discuss how we can assist you with cheaper motor vehicle finance as rates are set to rise.
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.