Recently we have posted several articles on interest rates and especially around the increasing likelihood of an interest rate rise this year. Specifically, calls for a rate rise refer to the Reserve Bank of Australia (RBA) lifting the official cash rate. Our rolling coverage of this topic is intended as an update to inform prospective customers what an interest rate rise could mean to both personal car loans and business vehicle finance. This information can be an incentive for buyers to move quickly on their vehicle purchases and finance to secure their loan in the current low interest rate climate.
The conversation around why the RBA should move on rates started in 2021 and was predominantly centred on the need to cool a red hot Australian property market. The RBA stood firm against these calls and held rates steady, reminding all that it was prepared to be patient. But economic conditions have changed over recent months and the conditions for a rate rise look far more likely to be in place much sooner than the RBA’s previous possible timeframe of around 2024.
The earlier calls for rate rise were primarily from analysts and finance commentators and experts. But this week several high profile voices have commented on the prospects of a 2022 rate rise. We provide this latest update for your information and planning purposes.
Recent Comments on Rate Rise
The Commonwealth Bank of Australia (CBA) is one of Australia’s largest lenders, especially in the home mortgage market but also in many other sectors. Jade Car Loans is accredited with the CBA, as we are with all the Big 4 and we include the CBA when sourcing finance for our customers.
A media outlet reports that a senior CBA figure expects rates the cash rate to commence being raised by June this year. Some predict it could rise from its current historic low of 0.1% to as much as 1% by year’s end. Typically, the RBA may make changes to the cash rate in increments of 0.05% to say 0.15%.
Another prominent voice on interest rates this week was that of Treasury Secretary Dr Steven Kennedy. It is worth noting that Dr Kennedy is also on the board of the RBA. In appearing at a Senate committee hearing in Canberra, Dr Kennedy did not give any comments regarding timing of a rate rise but did say that rate would have to increase in what he described as normalising.
Latest Economic Figures
The economic figures which the RBA considers in regard to rate changes are inflation and unemployment. The January 2022 unemployment figures were released last week and the rate has remained at 4.2%, unchanged from the December figures. This is the lowest level in 13 years and supports statements from the RBA and others that Omicron has not derailed the country’s economic bounce back from Delta.
Inflation on the other hand is surging. Regulators and governments face challenges in setting monetary policy and other settings to achieve the optimum balance between inflation and unemployment. Currently the country has the prospect of achieving an extremely low unemployment rate, verging on technical full employment. A prospect which is highly aspired to.
Upcoming major economic statements and decisions to watch for include the next RBA Board meeting on the first Tuesday in March and the annual Federal Budget. The Budget is usually brought down in May but due to the anticipated timing of the next Federal election, the Treasurer, Josh Frydenberg will deliver the Budget on 29 March this year.
The Prospect in Perspective
For many that are simply not into all this economic and financial discussion, we put the prospect of rate rise into perspective. What could an interest rate rise mean to a car loan?
First, the official cash rate is not the interest rate offered in the lending market. It is essentially a bank-to-bank loan rate but it does form the basis from which lenders set their own lending rates.
The official cash rate has not gone up for many, many years so the prospect of a rate rise and an increase in home mortgage repayments will be a whole new experience for most Australians.
When the cash rate is increased, lenders tend to follow by increasing their rates on both their savings and their lending products. By how much will depend on the individual lender.
Unlike home loans, with secured car loans – both personal and business, a fixed interest rate is fixed for the entirety of the loan term. So when you secure a fixed rate car loan with Jade, you are assured that your rate and your repayments will remain the same for all the years of the loan term.
To see by how much a higher interest rate can increase car loan repayments and hence the total amount of interest payable on the loan, refer to our car loan calculators. With personal car loans, our interest rate business car loans website shows the current rates offered by several lenders including Jade Car Loans. Enter a loan amount, say the price of the new car you want. Then check out the repayment amount for cheapest interest rate loan, which is ours, against some of the higher rated loans. It’s clear to see how a rate rise affects a car loan.
For business finance customers, use the car business loan calculator and leave all values constant while varying the interest rate. See how even a 0.05% or 0.15% increase in an interest rate can affect the repayment.
As with all developments in the lending sector, our team will be keeping a close eye on interest rates to update and inform over coming weeks and months. But if you are in a position to move now or soon on your vehicle purchase, it could be a cost-saving decision.
Talk with Jade Car Loans 1300 000 003 to secured a fixed, cheap interest rate car loan
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.
