Interest rates are an extremely popular topic of conversation and most business operators and home owners will be well aware of the current scenario pertinent to their situation. Many business operators may also be mortgage holders and are across the fixed v variable rate home loan situation. But in the equipment finance lending sector, loans are structured differently from home mortgages with fixed rates applied differently. With complacency setting in around the long-running historic low interest rate situation, businesses can be smart to consider the benefits of fixed interest rate finance for equipment acquisitions and lock-in low rates now.
Business seeking finance to acquire new equipment can lock in the current low rates across all the years of their loan term. We explain how businesses can lock in low rates.
Current Interest Rate Situation
It is widely known that the RBA has kept the cash rate on hold at the 0.1% historic low since November 2020. Long enough for many to become blasé about being able to get cheap interest rate finance. But there have been calls from economists and analysts for the RBA to lift rates to cool the housing sector. Calls which have so far been rejected by RBA Governor Philip Lowe.
But the RBA will hold its first meeting for 2022 on 1 February to discuss interest rates and monetary policy. Prior to the emergence of Omicron the economy was bouncing back well after the Delta-driven lockdowns. Unemployment was trending downward and inflation edging upwards.
The RBA has stated targets of 2-3% sustained inflation and unemployment sub or around 4% as key conditions to trigger a rate rise. These conditions were not expected to occur until around 2024.
The bank’s view on the economic effects of Omicron and how it sees this impacting the economy’s growth moving forward will no doubt be revealed in the statement made on 1 February.
While the RBA does not expect to raise the cash rate until 2024, we are already seeing home loan lenders edging their rates up in anticipation. Could equipment finance lenders do the same prior to an official rate rise? Lenders source their funding from various sources and if global rates rise and cause a rise in their own funding costs, then it is of course a possibility.
Locking in a Low Rate
Businesses can avoid an interest rate rise by locking in a fixed interest rate loan now at the current low rates. We offer fixed interest rate finance across our portfolio of Lease, Rental, Chattel Mortgage and Hire Purchase.
Unlike home mortgages where a fixed rate may only be applicable for a few years, with fixed rate equipment finance that fixed rate is applicable to the full loan term. With equipment finance available with terms of up to 7 years, that means a business taking out a loan today over 7 years will still be enjoying current low interest rates at the start of 2029. Years after the RBA is expected to increase rates.
Realising the Benefits
The key benefits of fixed rate finance include paying less in total interest on the loan. Meaning the finance will cost less. And also achieving lower finance repayments. Both key objectives for most businesses seeking cost-effective ways to invest in new equipment.
In addition, fixed rates provide assurance and confidence for the business moving forward. Budgeting and forecasting can be made based on the knowledge that at least the loan repayments will be constant and unchanged over the loan term period. This can be of significant assistance when making other investment decisions. After the disruption and uncertainty of the past few years, any certainty for business will no doubt be extremely welcome.
Refinancing
With the drop in interest rates over the past few years, businesses with loan arrangements made prior to the rate cuts and at higher than current rates, may consider refinancing. Refinancing can enable a business to secure a new fixed rate loan at current low rates to replace existing loans.
While refinancing is achievable at low interest rates, the costs involved in the process need to be factored into the decision. Paying out existing loans early can attract fees from lenders.
Jade Equipment Finance offers expertise and services to source and structure cost-effective refinancing at cheap and fixed interest rates. This may be done on a single loan or to combine several finance contracts into one loan arrangement.
Structuring Fixed Rate Finance
To start formulating how you would like your fixed rate equipment loan structured, use our Equipment Finance Calculators. We offer two devices which are both easy and free to use. The Interest Rate Calculator shows the different interest rates we are currently achieving on different types of loans. The Equipment Loan Calculator allows users to vary the loan amount, term and the balloon. Both reveal estimated repayments based on the data entered.
Business owners can get a good idea of what loan term they will be seeking, what percentage balloon they prefer and whether or not to opt for no deposit finance.
There are significant benefits to be realised with fixed interest rate equipment finance and locking that in with our current very cheap rates can further enhance those benefits.
To discuss fixed interest rate equipment finance, speak with a Jade Equipment Finance consultant on 1300 000 003
DISCLAIMER: IF MISINTERPRETATIONS, MISREPRESENTATION OR ERRORS EXIST IN THIS ARTICLE, NO LIABILITY IS ACCEPTED. THE INFORMATION IS PROVIDED ONLY FOR GENERAL PURPOSES AND NOT IN ANY MANNER INTENDED AS THE ONLY SOURCE FOR MAKING FINANCIAL DECISIONS. THOSE THAT CONSIDER THEY REQUIRE ADDITIONAL GUIDANCE OR ADVICE SHOULD REFER TO AN INDEPENDENT FINANCIAL ADVISOR.
