The RBA Board met on Tuesday 4 October to make its monthly decision on the official cash rate with another rate rise highly anticipated. Many in the economic and finance sector were expecting a rate rise of another 0.5%. But there has been building pressure and commentary for the central bank to slow down the pace of rises for the fear of the country going into recession. Many with existing motor vehicle finance and those intending to apply for a car loan will no doubt be wondering where this decision leaves them.
While the official cash rate as determined by the RBA is not the interest rate that applies directly to car loans, it does have an impact on the motor vehicle finance sector. The effect on new and existing car loans from RBA rate rises will depend on a range of factors but buyers can still find a cheaper car loan with Jade Car Loans.
We’ll work through the factors and scenarios to illustrate how a car loan may or may not be impacted by decisions on interest rate rises made by the RBA Board.
Existing Motor Vehicle Finance
Whether or not an existing car loan would be affected by a change in interest rates will typically hinge on the type of interest rate on the loan – a variable rate or a fixed interest rate. With a fixed interest rate car loan the rate and therefore the repayments should remain constant and unchanged for the loan term, regardless of fluctuations with the official cash rate. Variable interest rates, as the name indicates, can be changed as a result of changes in interest rates by the lender.
We arrange our Secured Car Loans and commercial car finance products with a fixed interest rate. The rate secured at the time the finance was arranged is locked-in for the full finance term. However, some others lenders may arrange loans at a variable interest rate. Unsecured Personal Loans, such as we offer for vehicles not suitable as loan security, can have a variable interest rate.
Those with a variable interest rate car loan should contact their lender for information as to their individual circumstances.
New Car Loans
Applications for new motor vehicle finance are arranged at the cheapest interest rate that we can source at that time. Quotes that have already been received and accepted should remain unchanged. Applications currently awaiting a quote will be quoted at the cheapest rate achievable.
Pre-approved car loans with a fixed interest rate will need to be actioned before they expire to ensure the quote remains valid.
For those intending to apply for motor vehicle finance through Jade Car Loans, can be assured that our consultants will, as always, be working hard to secure the cheapest rate achievable. How quickly a lender will respond to a RBA rate rise and increase their car loan rates will vary across the market. There are times when lenders actually increase rates in advance of RBA rate decisions. This may occur as that lender strongly believes rates will be increased by the RBA in coming months.
To get an indication of what may happen to interest rates over coming months, review what has happened and what has been stated over the past few months. At the October meeting, the RBA Board opted for a 0.25% rate rise, less than the 0.5% of the past 4 months. This means a 2.5% increase in the cash rate since May. Several of the major banks are still reportedly expecting the official cash rate to climb from today’s 2.6% to 3% this year.
In the October statement, the RBA stated that it expected that more increases would be needed to address inflation in the coming period. Those are fairly strong indications that higher rates are on the horizon.
Wherever possible, buyers should expedite purchase plans to secure motor vehicle finance prior to another rate rise. The RBA Board next meets on 1 November. When using our business vehicle finance calculator to derive repayment estimates for an upcoming purchases, users would be wise to allow leeway for any rate rises prior to lodging their loan application.
New loan applicants should also be aware that the lowest car loan rates that are displayed by motor vehicle finance lenders, unless otherwise indicated, will be for new vehicles and for applicants that have a credit score in the good rating band. Buyers can work to repair their credit score to ensure the best loan offer is received.
With variations across the market, those seeking new motor vehicle can benefit from using our services. We save buyers time by bringing the cheapest loan offer from across a vast section of lenders and use our expertise and bargaining power to achieve the best interest rates.
Contact Jade Car Loans at 1300 000 003 for cheaper interest rate car loans.
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.
