You don’t have to be a financial expert or analyst to appreciate the interest in interest rates in Australia. There seems to be regular mentions in the media of rates and lenders are continually promoting their loan products. While much of this attention is in regard to home mortgages which are structured differently from say business equipment finance, all interest rates do share a common foundation – the official cash rate.
The cash rate is set by the Reserve Bank of Australia (RBA) at their monthly Board meetings. Up until recently these meetings were highly anticipated. But the after cutting rates 3 times in 2020 in response to the economic crisis of the pandemic, the RBA has left the rate steady for the past year, since November 2020.
The cuts to the rate were part of the RBA’s monetary policy to support the economy during the crisis. In concert with the Federal Government’s fiscal policy measures, including the much appreciated accelerated asset depreciation measures, it appears to have been successful.
But after a full year with the cash rate at 0.1% and businesses and individuals taking advantage of the subsequent historic low lending rates, how long will this rate party go on for?
With the housing market posting record high prices, there have been calls from some circles for the RBA to increase rates to cool the market. So where to for interest rates? If the RBA does increase rates before their expected 2024 target, what will it mean for equipment finance?
As specialist equipment finance lenders, our Jade Equipment Finance team stay across what is happening with interest rates so we can continue to offer the cheapest rates. Jade Equipment Finance brings you up to speed with the latest RBA November decision and possibilities for you to take advantage of the current historic low rates.
The November 2021 meeting of the RBA Board marked somewhat of a milestone – 12 months of a historic low cash rate of 0.1%. Since cutting the rate to 0.1% in somewhat of a surprise move in 2020, the Board has continued to keep the rate steady and repeatedly forecast 2024 for a rise.
That rate was kept again at the recent meeting but there was a slight shift in monetary policy in regard to the bond buying program. In the monthly statement, the RBA Board noted that it expected the economy to quickly recover from the recent Delta outbreak, though future health-related issues still remained an uncertainty.
Previously it had set a target for inflation in the 2-3% sustained region and unemployment lower than current levels, to trigger a rate rise. Recent increases in inflation have led to a rise to 2.1%. However, the RBA notes that this is still low. It is expected to reach 2.2% in 2022 and then up to the 2.5% in 2023.
But while the RBA remains relatively consistent with its forecasts and intentions moving forward, not all in the finance community agree. Just this week many analysts from leading banks and other organisations posted their predictions for a rate rise. Some even saying it could come in 2022 and prior to the next Federal election – which is scheduled for next year.
For those planning the purchase of new equipment in coming years, it may be highly advisable to keep interest rates top of mind and possibly bring forward any acquisitions to ensure you secure the cheapest, current rate available.
To review the interest rates we are currently offering across our equipment finance portfolio, please refer to our Interest Rate Calculator.
New Equipment Acquisitions
Our interest rates are currently highly attractive for new equipment acquisitions. Rates for Chattel Mortgage, Leasing, Rent to Own and Commercial Hire Purchase are the cheapest in years. While the interest rate offered may vary across different industries, we provide finance for all types of business machinery, plant and equipment across all sectors.
With loan terms up to 7 years available, that is a significant timeframe to enjoy the current historic interest rates. If a purchase is put off to a time after a rate rise comes into effect, even a small increase in the interest rate can mean a significant increase to the overall cost of the finance.
To see exactly how say a 0.1% or even 0.05% increase in equipment finance rates could affect an equipment loan, head to our Equipment Finance Calculator. By varying the interest rate entered the difference in the repayment estimate can be easily seen. Multiply the difference over the 84 months of a 7 year finance term and the cost is quickly appreciated.
Refinancing is another consideration. While interest rates are at the current lows, it may be worthwhile to review current business equipment finance contracts with a view to possibly restructuring and refinancing.
There are of course costs involved in refinancing which our consultants will explain fully and should be taken into account. However, this may be a move worth considering to lock-in cheap interest rate equipment finance for the years ahead.
With current interest rates across the finance markets at these historic low levels, there’s no doubt that an increase will come at some stage. When exactly? That is unclear. What is clear is that we can provide better interest rate finance right now that can be locked-in over a full finance term to provide assurance and confidence for your business moving forward.
Contact Jade Equipment Finance on 1300 000 003 to discuss cheap interest rate equipment finance
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.