Interest rates are the key cost component of all types of credit, loans, finance and borrowings. It is the interest rate that determines the monthly repayments and the total cost of the loan over the loan term. With many Australians purchasing with finance, interest rates are top of mind for buyers of all types of goods homes, cars, boats, caravans, trucks, motorbikes and business equipment. Businesses in particular pay attention to the interest rate on commercial loans such as overdrafts as it represents a cost to the business. It is quite widely known that interest rates can change at different times. So when it comes to securing a loan or finance is a fixed interest rate loan a good idea?
Loans can be offered at either a fixed interest rate or a variable interest rate depending on what goods are being acquired, the loan application and the loan products offered by individual lenders. It should be noted upfront that home mortgages are set-up and structured differently from consumer goods loans and business finance. They can run over terms of 10, 15 or 20 years which is a long time for lenders to commit to a fixed interest rate. In comparison, loans to purchase goods and equipment are for much shorter terms of 4, 5 or up to 7 years. While home loan interest rates attract a lot of attention in the media, many of the issues discussed in that arena do not apply to the types of loan markets in which Jade Finance operates.
Our discussion in this article is focusing on our areas of expertise being loans for motor vehicles, boats, caravans, motorcycles, trucks, equipment and commercial loans. We explain why a fixed interest rate loan can be a good idea for both business and private buyers and significant benefits can be realised by locking in cheap, fixed interest rate finance.
Fixed v Variable Interest Rate Loans
Fixed interest rates in our lending markets mean that the interest rate is fixed at that rate for the entire term of the loan. A variable interest rate loan means the lender can adjust the rate of interest on the loan when interest rates in general or their specific rates change.
Currently, the Australian lending market is enjoying extremely low interest rates as the Reserve Bank of Australia (RBA) reduced the official cash rate several times over 2020 in response to the economic effects of COVID-19. The cash rate has been at the historic 0.1% level since November 2020.
The RBA has repeatedly countered commentary from various voices to lift rates, saying it is waiting for the conditions of sustained inflation in the range of 2-3% an unemployment lower, around 4% or less in order to trigger an increase. These conditions were not expected until 2024.
Prior to the Omicron outbreak, the economy was rebounding well from the economic hit from Delta and conditions may have seemed as if they were nearing the RBA targets. Some analysts even predicted a rate rise prior to this year’s Federal Election, due before May. But the effect that Omicron is having on businesses with massive staff furloughs causing limited trading and consumers seemingly staying away, is likely to pause the good bounce back performances.
The RBA meets in a few weeks for their first interest rate decision for 2022 and their comments on the Omicron effect will be of great interest.
But while the RBA has held tight on increasing interest rates, not all lenders have followed suit. Several lenders have already increased their home loan rates. Could lenders in other markets also lift their rates ahead of an official increase? It remains to be seen. At least with Jade Finance you are always assured of better interest rates regardless of market fluctuations.
Fixed Rate Benefits
Jade Finance provides our secured loans at a fixed interest rate and we have strong reasoning to support that as we see many benefits for our customers in achieving a fixed interest rate loan. These loans are available across our Secured Car, Boat, Bike and Caravan Loans and our business asset acquisition finance products such as Truck Loans and Equipment Finance and commercial loans. Refinancing can also be achieved at a fixed interest rate.
Unsecured Personal Loans and Unsecured Business Loans can be priced at either a fixed or a variable interest rate.
The benefits of a fixed interest rate loan can include:-
- Confidence and assurance that the loan elements won’t alter over the loan term even when the RBA increases the official cash rate and lenders react by lifting rates.
- A fixed rate and a fixe loan term deliver a fixed monthly repayment which remains constant. This allows for both businesses and households better budget planning.
- Knowing the total cost of the loan with interest can better position business and individuals to make purchase decisions.
- Securing a fixed rate loan at the current low rates provides protection against rate increases during the loan term.
- Businesses can prepare longer-range finance forecasts based on fixed outgoings with fixed rate loan repayments and schedule investments and other strategic moves with confidence.
- Individuals can plan their household budget and other expenses over the years of their loan.
In our expert opinion, fixed interest rate loans are a good idea. An even better idea is a fixed rate loan at our current cheap rates. Feel free to contact us to discuss the loan options available for the goods and equipment you are looking to purchase.
Contact Jade Finance 1300 000 008 for a fixed interest rate loan quote.
DISCLAIMER: NO LIABILITY IS ACCEPTED IF ERRORS OR MISREPRESENTATIONS ARE FOUND IN THIS ARTICLE. THE ARTICLE IS PREPARED AND PRESENTED FOR GENERAL INFORMATIVE PURPOSES AND IS NOT INTENDED TO BE THE SOLE SOURCE OF INFORMATION FOR MAKING FINANCIAL DECISIONS. THOSE REQUIRING GUIDANCE AND ADVICE SHOULD CONSULT A FINANCIAL ADVISOR.