With the RBA moving to lift interest rates at its 3 May 2022 meeting, concerns may be raised by many business owners as to how this rate rise will effect both existing and new equipment finance. Moves to cut or increase the official cash rate by the RBA do flow into all lending markets and this rate rise will be reflected as lenders review and adjust their rates.
While the move by the RBA was expected as a result of surging inflation and falling unemployment figures had created the appropriate conditions for a rate rise, the concept of interest rates rising will come as something new to many operators. Interest rates as far as the cash rate have not been increased for around 12 years. So we have moved from a position of historic low interest rates since November 2020, to this somewhat historic phase of rising rates.
There will be effects of the RBA May rate rise and future rises on equipment finance in various aspects but cost-effective loans will still be attainable. Banks and non-bank lenders will respond to the RBA moves by adjusting their rates on equipment finance. The amount and timing of the adjustment will be based on lender’s individual policies in this regard.
To assist business operators to plan and proceed with equipment acquisitions, we address some typical concerns and provide insights into securing cost-effective finance as rates start to creep up.
Types of Finance
The range of finance products available for the acquisition of plant, machinery and equipment remains unchanged by any variations in interest rates. The selection of Chattel Mortgage, Lease, Rent to Buy and Commercial Hire Purchase remain the same.
These finance products attract different interest rates and the variations across the selection will also be retained. In the light of rate increases, business operators may rethink their choice of loan type. The choice of loan type depends on many aspects of the business including its financial objectives, balance sheet approach and the method of accounting used.
If possible, opting for a loan product with a cheaper rate than the business traditionally selects may present a useful strategy to achieve lower interest rate finance for new equipment purchases moving forward. It is advisable to have this discussion with the business accountant or financial officer.
Existing Finance and Loans
The impact of a rate rise on existing equipment finance will depend on whether the loan was secured with a fixed or a variable interest rate. Jade Equipment Finance offers fixed interest rates across our equipment finance range. This ensures businesses that the rate and the repayments will remain unchanged through the entire finance term.
Fixed interest rate loans that are currently in place should not change as a result of the RBA and ensuing lender rate changes.
Some loans such as Unsecured Business Loans and loans from some lenders may have been acquired with a variable interest rate. If so, there is the possibility that the rate and hence the repayments will increase. Businesses in this position should contact their lender for details.
To prevent any changes to repayments, business can seek fixed rate finance including considering refinancing variable rate loans with fixed rate finance. Speak with one of our consultants about the options for your individual circumstances.
Pre-approved Equipment Finance
Securing pre-approved equipment finance can present many benefits to businesses. It can provide confidence with the knowledge of exactly how much the business is approved to borrow and hence spend on equipment and assist in making decisions on which make or model of machinery to consider.
Pre-approved finance is quoted based on the interest rate current at the time of applicaton/quoting. The offer made will be valid for a certain time period as indicated by our consultants when the offer is made. If the offer is accepted and the finance proceeded with before the offer expires, a change in interest rate should not typically effect the offer.
If the pre-approved finance is not utilised prior to expiring but is then re-requested at a later time, the new offer would be priced at the interest rate current at the new timing. If you have a pre-approved offer through Jade Equipment Finance and have any queries, please contact your consultant.
New Finance Applications
New applications for equipment finance are quoted based on the best interest rates that we can secure at that time. Our consultants source quotes from across our vast lender panel to ensure we have secured the cheapest rate available to suit individual circumstances.
If you have a finance application currently being processed, your Jade consultant will advise any updates as a result of the RBA rate rise.
With further interest rate rises eluded to by the RBA, businesses that are in a position to act on acquisition plans, may save on interest on their loan by acting asap.
Refinancing Equipment Loans
Refinancing is priced at the rates current at the time of application. Those that have been considering refinancing existing loans while interest rates were at historic lows may be wise to expedite those plans.
Securing Lowest Interest Rate Equipment Finance
Despite rises in the cash rate and the flow-on effect through lending markets, Jade Equipment Finance continues to focus on achieving the lowest interest rate finance for our customers. With the 0.25% rate rise by the RBA, lending rates are still relatively low and attractive. To work up estimates of what this level of increase may mean for equipment finance repayments, use our finance calculator.
The equipment finance sector is quite competitive and our specialist, non-bank lenders are open to flexibility and negotiation when our consultants seek finance offers.
So while there will be rate rises across lending sectors as a result of the RBA decisions, we are still in a position to achieve attractive and cheap equipment finance rates for customers.
To discuss 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.
