The recent cash rate hike by the RBA is likely prompting many operators to reconsider their plans for vehicle replacement, upgrades, or fleet expansion through truck finance. Given the current economic climate, the prospect of committing to new truck finance may evoke doubts and uncertainties. There are concerns about the potential costs associated with financing, as well as the impact of truck finance repayments on cash flow and overall business profitability.
However, it's crucial to also consider the potential consequences of not moving forward with these investments in new vehicles. There are uncertainties surrounding how the business can position itself to pursue new opportunities, secure tenders and contracts, achieve greater operational efficiencies, maintain competitiveness in a fiercely competitive, low-margin industry, and meet profit targets without the infusion of new trucks. These questions underscore the intricate balance between immediate financial concerns and the potential long-term benefits of strategic investments.
Don’t shelve those truck acquisition plans before considering the ways forward to achieving affordable truck finance. Even as the RBA raises rates, affordable truck finance to invest in new vehicles in order to pursue business goals may be achieved through specialist lenders and by utilising available benefits, services and resources.
Impact on Truck Finance of RBA Decisions
With now eight cash rate rises in as many months and with the Reserve Bank of Australia (RBA) stating that further increases are expected to be required, the messaging is clear. Expect interest rates in general to go higher in the coming period.
While the home mortgage market is usually first to increase their lending rates, the impact in other finance sectors, especially business finance, can be less certain. Lenders in the truck finance sector are not compelled to follow the lead of the RBA. Banks and non-bank lenders make their own decisions around business finance interest rates based on their own assessments and analysis of the market such as truck finance and the outlook for the economy in general.
Non-bank lenders in specialist niche markets such as heavy vehicle finance may see potential for growth in a particular industry and choose to support that sector with more competitive, ie cheaper, interest rate truck finance. The deeper understanding of specific industries may result in the offering of better interest rates compared with lenders that offer broader, more generalized business finance.
So the impacts of RBA rate rises can vary across the truck finance sector. The challenge for those seeking those cheaper rates is to identify and connect with those lenders that are offering the best rates. An objective we can assist with facilitating through our accreditations with many lenders including those that specialise in truck finance.
As a broker-style lender, we know the truck finance market and source the cheapest rates currently on offer and negotiate with the lender for the optimum terms and conditions and the cheapest rate.
Set Clear Truck Finance Objectives
‘Affordable’ or cost-effective truck finance can mean the loan with the lowest possible monthly payments or it can mean the lowest possible total investment cost. The total investment cost being the price of the vehicle plus the total cost of finance including the total interest accrued over the finance term.
While achieving both these objectives relates to the interest rate, there are other finance structure aspects to consider.
- Deposit: We do offer no deposit truck finance which allows for the entire truck purchase price to be included in the loan. However, by paying a deposit or a larger deposit, the loan amount would be reduced. This in turn reduces the interest accrued, the monthly repayments and the total investment.
- Finance terms: The number of years that the loan is taken over affects both the monthly payments and total interest accrued. Longer truck loan terms can reduce the monthly commitment but increase total interest payable. Shorter term – higher per month payments but less interest accrued over the full loan term
- Residual/balloon: Varying the residual or balloon can also vary the monthly repayment amount. But the residual still attracts interest and will need to be finalised at the end of the finance term.
The structure of the finance will be subject to lender approval which can be based on the application assessment. We handle these negotiations to best achieve the preferred outcome for our customers. But it is up to the business operator to know what they are seeking to achieve.
Using a Truck Loan Repayment Calculator can assist operators to set those objectives as to their preferences for lower repayments or lower overall investment costs. Having this clear vision can streamline and expedite the finance sourcing process when briefing our consultants.
Using Available Benefits
Easing or reducing the overall onus on the business of new truck finance may be assisted through receiving greater tax deductions on the asset acquisition. The greater the tax deduction, the less tax payable which can be a real saving and may be seen as offsetting the cost of the investment.
While all truck finance products do include tax deductible elements, from time to time additional tax benefits can be available. Currently, temporary full expensing is available for the acquisition of eligible assets by eligible businesses.
This offers a significant benefit in writing off the full purchase price of the vehicle in the year of acquisition. But that requires the appropriate finance product which is considered to be Chattel Mortgage. The current offer of temporary full expensing expires on 30 June 2023 so serious consideration should be given to this benefit well ahead of the deadline to avoid missing out.
Maximising the Options
These are just a few ideas of how affordable and cost-effective truck finance may be achieved despite the latest increases to interest rates. Our services are available to assist all types of business operators across all industries to achieve their individual objectives in regard to truck finance. Finance structured to support the business to realise improved productivity, profitability and efficiency.
Don’t cancel those truck acquisition plans. Contact Jade Truck Loans on 1300 000 003 to discuss the availability of cheaper interest rate truck finance.
DISCLAIMER: THIS INFORMATION IS ISSUED PURELY FOR THE PURPOSE OF GENERAL INFORMATION PROVISION. IT IS NOT TO BE TAKEN AS THE ONLY SOURCE OF INFORMATION FOR BASING FINANCIAL DECISION-MAKING. THOSE REQUIRING FINANCIAL GUIDANCE AND ADVICE SHOULD CONSULT WITH THEIR FINANCIAL CONSULTANT OR ADVISOR. NO LIABILITY IS ACCEPTED FOR ANY MISREPRESENTATION OF POLICIES, DATA OR ERRORS IN THIS CONTENT.
