As has been widely reported in the media and in our news articles, there is a very strong probability that interest rates will start to rise from as early as June. Inflation has been increasing for several months at the same time as the unemployment rate has been dropping. Though the March unemployment rate of 4% is the same as for February. These are in the target range that the RBA has previously indicated as being possible reasons to lift the cash rate. With the RBA expected to raise rates at its June meeting businesses may look to refinancing equipment loans before lending rates respond and rise.
The RBA meeting is scheduled for the first Tuesday in June and it is now mid-April. Is it too late for refinancing? How long will the process take? Will lenders increase equipment rates prior to action by the RBA? Are my loans suitable for refinancing? Yes, some business operators will obviously have plenty of questions around refinancing. With the clock ticking we address these concerns and provide information on how refinancing of equipment loans can be achieved at current low interest rates.
The Process of Refinancing
We’ll start with some of the basics of refinancing in a quick Q&A format:-
- What is refinancing? It is the process of replacing the existing equipment loan with a new loan.
- How it is done? A loan application is made for new finance on that existing loan. Our consultants source the cheapest quote and/or offer to replace the existing loan including any balloon/residual involved. On accepting the offer, we proceed to finalise the refinancing by paying out the existing lender for the monies outstanding on the loan. This would include any payout charges and other fees.
- Who can refinance? All types of business set-ups can apply to refinance existing loans.
- What equipment can be refinanced? All types of plant, machinery and business equipment can request refinance. Lenders will operate within individual guidelines as to suitability. But Jade Equipment Finance is accredited with many banks and lenders so we have a vast choice when it comes to sourcing the right lender to suit our customer’s requirements.
- Do I have to stay with the same bank or finance company? No. Your Jade consultant will source the cheapest refinancing offer from across our lending panel. There is no obligation to refinance through the same lender.
Finance Product Selection
Another question that many businesses ask when considering refinancing is if they need to refinance using the same finance facility or not. The answer is NO you do not have to refinance with the same finance product as the original loan.
For example: If the existing loan is a Lease, you can refinance with Chattel Mortgage. If the existing loan is Rent to Own you can refinance with Lease or another form
The choice of finance products for refinancing include:-
- Chattel Mortgage
- Lease
- Rent to Buy
- Commercial Hire Purchase
As you can see from our Compare Equipment Rates table, the interest rate varies across finance products. Achieving a cheaper interest rate can be one of the major incentives for businesses to refinance.
Refinancing Interest Rates Scenario
As mentioned, a cheaper interest rate is a key reason to refinance. The refinanced loan is quoted at the current interest rate. And currently, interest rates remain at their historic lows. But that could change if the RBA acts as expected and raises the cash rate in June. That may be the first of several rate rises in 2022. Lenders will then react based on their own individual policies to reset their own rates on loans such as equipment finance.
If the existing finance was sourced when rates in general were much higher, say pre-2020, then it may be expected that a lower interest rate may be achieved in comparison.
The refinanced loan rate will also depend on the details of the loan application. If for example the business or sole trader individual applying for refinance has improved their credit rating since the existing loan was secured, they may achieve a better interest rate now. An improved credit profile can also be a good reason to refinance.
Calculating Refinancing Repayment Estimates
While loan fees and payout charges do need to be factored into any refinancing, businesses considering the process can use our Equipment Finance Calculator to estimate possible repayments. Achieving a lower monthly repayment level to ease pressure on cash flow can be a popular reason to seek refinancing.
Additional Matters to Consider
While refinancing can be an effective strategy to achieve cheaper interest rate finance or lower loan repayments which can be highly beneficial to the business, there are matters to take into consideration with the process.
These considerations include:-
- Payout fees and costs of establishing the new loan.
- IAWO cannot be utilised through refinancing as the process would not be seen as acquiring new assets.
- Equipment would be treated as second hand when lenders quote for refinancing. This may attract different interest rate or loan conditions from when the equipment was originally acquired as new.
So with the clock ticking for a rate rise, the big question remains to be addressed - how fast can refinancing be completed? When engaging Jade Equipment Finance to handle your refinancing, we will react with quick quotes and fast approvals to streamline and expedite the process. The exact time involved will of course vary and depend on the complexity of the individual requirements.
Don’t waste time. Speak with a Jade Equipment Finance consultant on 1300 000 003 about refinancing equipment loans prior to the expected rate rise.
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.
