Just the mention of ‘economic literacy’ will likely have many readers immediately clicking to the next story. But for motor vehicles buyers that really want to better understand how car finance interest rates are set and what causes changes, improving this knowledge may be a benefit. When taking on any form of finance, including car loans, buyers need to be in a position to make informed decisions. The greater the knowledge attained, the better position buyers may be in to make those key decisions.
Over the ‘pandemic years’, Australians have been more exposed to economic issues than usual. The regular press conferences by the Prime Minister, Premiers and both state and federal treasurers contained many references to issues around the economy that had been or had potential to be impacted by the pandemic. We heard a lot about unemployment rates and the effects on the economy. The issues around the economy were key to many businesses and individuals receiving Government support and grants.
A key event was the Reserve Bank of Australia (RBA) slashing interest rates in response to these economic issues. Did you really understand why that was happening? Many probably just accepted it and took advantage of the historically low rates for many goods including for car finance. But as the crisis period of the pandemic appeared to ease-off, interest rates started to rise significantly and look like continuing to be increased in the time ahead.
Having a greater level of economic literacy may assist in putting all this in perspective and in providing a greater understanding of what may happen with car finance interest rates for those intending to purchase new cars in 2023. We offer a basic rundown on economic literacy, where to access resources to assist and an overview on the relevance for car finance interest rates.
What is economic literacy?
The Reserve Bank of Australia (RBA) notes that defining economic literacy is not completely straightforward. But in the general vernacular, let’s say it is having at least an understanding of some of the key terms and concepts around the performance of the economy.
RBA resources are available to assist buyers better understand the economy which may lead to better understanding car finance interest rates and car loans. The bank website has an education section with a range of resources to assist those that wish to improve their knowledge bank.
While inflation and unemployment are generally understood but here are a few other simple explainers:-
- Quantitative easing and tightening: During the pandemic, quantitative easing was part of the RBA’s policy to bring down interest rates. Tightening is when central banks stop buying these bonds and simply let them mature. This is an important aspect of the RBA’s role and can affect interest rates. Stay tuned for more in the media on this.
- Wage-price spiral: The RBA Board has mentioned this in several monthly statements. This is when wages grow then pushes up prices. Businesses having to increase prices to cover the increased wages. The RBA is balancing rate decisions to avoid this situation in Australia.
- Real wage growth: ‘Real’ growth in wages is when the increase to the pay packet is actually ahead of price rises.
The performance of the economy dictates the actions of the RBA in terms of interest rates and also of government policy, especially at Budget time.
Relevance for Car Finance Interest Rates
Having at least a general understanding of economic terms and trends may provide a greater understanding of RBA cash rate decisions which in turn can impact car finance interest rates, including those like Tesla finance. These rate decisions – both cuts and hikes, are determined by the economic conditions and data. That data relates to issues such as inflation, unemployment, wage growth and the prospects for the economy to enter recession or even a depression. The RBA may also use quantitative measures to bring down inflation which may ease rates.
Knowing what the signs may mean may assist in having at least an awareness of what may happen with interest rates moving forward.
Sourcing the Cheapest Car Finance Interest Rates
For those that don’t have the time, interest or the inclination to improve their economic literacy, don’t panic. Cheap car finance interest rates can still be achieved even without and academic level of economic literacy. Buyers can engage specialist car finance brokers such as Jade Car Loans to source the cheaper car loans. Our role is exactly that – to take the brief from our client and source the cheapest car finance interest rates and loan from across our large number of lenders.
Contact Jade Car Loans 1300 000 003 to assist in sourcing the cheapest car finance interest rates for personal and business vehicles.
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.