The economic impacts of the COVID-19 pandemic have led to a raft of measures being implemented by the Federal Government in particular and other authorities and bodies. Authorities have been attempting to use all the levers available to them (as the finance media refer to measures) to stimulate the economy and in turn create jobs.
While the Government focuses on fiscal policy the Reserve Bank of Australia (RBA) has also been utilising it’s 'levers' with monetary policy initiatives. Early on in the pandemic, the RBA cut the official interest rate to 0.25%. A move that was much-welcomed. But as ‘more needs to be done’ the RBA has again moved on interest rates.
The board of the RBA meet on the first Tuesday of most months and the financial community await the ensuing announcement with keen anticipation. Prior to these meetings, analysts often state their prediction as to whether or not rates will be changed. Some tipped the RBA to change rates back in October but others thought that wouldn’t happen due to the Federal Treasurer bringing down the budget in early October.
That prediction played out and at their November meeting, while many Australians were picking their runner in the Melbourne Cup and the US was heading to the polls, the RBA cut the official cash rate by 15 basis points to a new historic low of 0.1%.
At Jade Equipment Finance we’re unpacking the implications of the rate cut in relation to both existing and future equipment finance deals so you can assess whether to review, react, refinance or just relax and keep operating as usual.
Overview
The RBA’s decision to reduce the cash rate means that banks can source their funds at a cheaper rate. The thinking being that they will pass on the benefit to customers in reduced lending costs and that in turn will motivate business to invest and that will create jobs. The cash rate is not the interest rate that businesses can expect on equipment finance loans but the basis from which the interest rate that lenders such as Jade can be built for our customers.
Some banks immediately announced plans to pass on the cuts to some of the borrowers and other lenders followed with a range of plans. The immediate effect from an official interest rate cut is potentially and usually to home loan customers. As you might be aware, home mortgages are structured differently from loans such as low rate equipment finance.
Businesses with existing equipment finance contract at fixed interest rates will not see a reduction in their loan. The reports were that some lenders were passing on the cuts to ‘some business loans’ but that is unlikely to include the asset acquisition loans.
The rate cuts should flow through to our area of concern, equipment finance, and those applying for new equipment finance may be offered a lower rate. However, it must be noted that Jade Equipment Finance is totally focused on always achieving the cheapest interest rates. Any reductions offered by our lending panel will be reflected in the rates we achieve.
Action Options
How you respond to the interest rate cuts will depend on your individual business circumstances. If you have existing finance deals which were arranged some time ago on a much higher interest rate, then reviewing your situation with a view to possibly refinancing is an option.
Refinancing involves establishing new finance contracts to replace existing arrangements. It will involve costs incurred in paying out existing contracts early and in establishing new loan deals. That should all be considered, preferably in consultation with your accountant and your Jade consultant.
If an equipment acquisition is in your short to medium term plans, then the rate cut may be the deciding factor to move on those plans. Your Jade consultant can provide you with a quick quote or you can use our calculator for a rough estimate on repayments. The calculator can be also be useful to see the variation in possible repayments when different interest rates are applied.
Jade Equipment Finance provides cheap loans on a wide range of equipment and provides customers with a choice of:-
- Equipment Leasing
- Rent to Own
- Commercial Hire Purchase
- Chattel Mortgage
The choice of which type of finance facility is best suited to your business should be made in consultation with your accountant.
The Long View
The RBA has signalled that this new historic low interest rate may be in place for up to 3 years. Good news for those considering equipment acquisitions in the medium term. We stay across the big picture and encourage customers to review the current interest rate cuts in context and in conjunction with other measures and initiatives available through Government stimulus plans.
Specifically, the Instant Asset Write-Off, temporary full expensing and loss carry back. All these have time limits so businesses need to act within the financial years specified to be eligible.
To calculate your repayments, try our equipment finance calculator and to find out how Jade can work with your business to achieve cost-effective asset investments, please contact us for an obligation-free discussion.
To discuss equipment finance options, contact Jade Equipment Finance on 1300 000 003
DISCLAIMER: THE INFORMATION, OPINIONS, DATA, POLICIES, PRODUCT SPECIFICATIONS AND OTHER CONTENT CONTAINED AND EXPRESSED IN THIS ARTICLE HAS BEEN OBTAINED THROUGH RECOGNISED REPUTABLE SOURCES, PRIMARILY IN THE PUBLIC DOMAIN. LIABILITY IS NOT ACCEPTED FOR ANY ERRORS OR MISINTERPRETATION OF SAID CONTENT. THIS CONTENT IS NOT INTENDED OR PROVIDED AS THE SOLE SOURCE OF INFORMATION OR AS SPECIFIC FINANCIAL ADVICE IN REGARD TO MAKING DECISIONS BY INDIVIDUALS OR BUSINESSES. THOSE THAT CONSIDER THAT THEY NEED PROFESSIONAL ADVICE SHOULD REFER TO A FINANCIAL ADVISOR.
