Just a few months ago, the RBA seemed to be targeting the possibility of an interest rate hike in the 2023/24 timeframe. However, the economy's recovery from the pandemic's aftermath has been surprisingly swift, and global events are exerting pressure on the Australian economy, leading to increased prices, higher living costs, and inflation. The rapid surge in inflation, which is driving up both personal and business expenses, has caused significant concerns among individuals and businesses alike. Of particular worry is the imminent prospect of rising interest rates, which has many people anxious about its potential impact.
For truck operators, the looming interest rate hike raises legitimate concerns about the potential repercussions on truck loan rates, especially for those who are planning to invest in new vehicles.
Not surprising that many would be worried about interest rate rises, as it will be quite a new concept to grasp. The cash rate and general interest rates have not been lifted for nearly 12 years!
While we can’t control or affect the interest rate decisions made by the Reserve Bank of Australia or by our lenders, we can provide a basic explanation of the current scenario. Having an understanding of how interest rate rises come about and how any rise may impact truck loans generally and individual finance agreements specifically, may alleviate some concerns for business owners.
Inflation Figures Put Pressure on RBA
Inflation and unemployment are the two key economic figures which have been mentioned by the RBA in Monetary Statements as relevant to its decisions around raising the cash rate. During the ‘pandemic years’ – 2020 and 2021, inflation remained low and unemployment was understandably higher than the RBA target.
The targets repeatedly given by the RBA to trigger a cash rate rise were unemployment around or below 4% and inflation sustained in the 2-3% range. These conditions were not expected to be reached until possibly 2023.
But, as the RBA has acknowledged, the economy recovered more quickly than expected. The global effects of supply chain issues and the war in Ukraine are also putting pressure on the Australian economy. Pressures and conditions which are driving up prices and resulting in surging inflation.
The latest inflation figures for the March quarter reveal an increase in inflation which puts the consumer inflation figure rising to 5.1% Underlying inflation now spiking to 3.7%.
These figures have the markets and financial analysts predicting a rate rise by the RBA as soon as the 3 May meeting. While the pressure is mounting on the RBA to make its move on increasing the cash rate, there are some that think the central bank may wait for the wages growth figures. These figures come out mid-May and have been mentioned by the RBA as a guide to when the economy is in the appropriate position to trigger a rise.
Surging inflation is not isolated to Australia, it is happening globally. In fact many other countries are experiencing much higher rates of inflation than Australia. The global inflation figures have prompted the IMF to comment that it the situation is a real danger in many economies and central banks should act to keep inflation under control.
Truck Loan Rates Effect
While having a broad global viewpoint of inflation and how it is impacting the local economy can be interesting and insightful, a more specific understanding of how this all impacts your truck loan may be more useful for planning business decisions.
The general and broad lending markets establish interest rates with the RBA-set cash rate as a essentially a foundation point. When the RBA raises or cuts the cash rate, lenders respond according to their own approaches to change the interest rates in their lending markets. Changes in the cash rate may be passed on to borrowers in whole or in part.
As far as the truck finance market, variations in interest rates will be seen across different banks and lenders. Specialist lenders can tend to be more competitive with the rates as they may have a deeper understanding of the truck market. Non-bank specialist lenders can typically be more flexible when negotiating with our consultants on both rates and on those critical loan conditions and terms. Non-bank lenders may be better—placed to be flexible compared with say banks, due to their different corporate structure and regulations.
But gaining access to this specific segment of the truck lending market frequently necessitates the engagement of a broker-style lender, and this is precisely where Using Jade Truck Lending comes into play. Within the non-bank lender landscape, there exists a subset that operates exclusively through its own network of designated finance brokers. By partnering with Jade Truck Loans, you tap into this network, benefiting from our expertise and connections to secure the most fitting financing solution for your needs.
Variations also exist across the truck loan product selection as we have demonstrated in our Rate Comparison Chart. To gain a comprehensive understanding of these distinctions, it's highly recommended to explore Truck Loan Rates – See How Different Loan Products Compare, allowing you to make informed decisions aligned with your financial goals.
When the RBA moves on the cash rate, it can be expected that the truck loan lending markets will respond to raise rates.
Those with existing truck loans which have been secured at a fixed interest rate will not see a change to their interest rate or to their loan. Those applying for new loans after a rate rise will be quoted at the rate which is current at the time of application.
Side-stepping Future Rate Rises
While the talk is primarily around whether or not the RBA will raise rates at the May or June meeting, do not ignore the background discussion. That being that a May or June rate rise could be just the first of several rises over the coming 6-12 months.
To side-step any further rate rises, business operators purchasing new vehicles should ensure they secure a fixed interest rate truck loan. We secure all our truck finance at a fixed interest rate to ensure that the rate and the repayments will not change over the finance term.
A fixed rate truck loan provides operators with certainty over their commitments over the loan period and the confidence to proceed with budgeting for further business acquisitions.
Contact Jade Truck Loans on 1300 000 003 to discuss a fixed interest rate truck loan.
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