Truck loan interest rates are reportedly increasing this 2022 instead of 2024.
The commentary around why the RBA should raise interest rates on truck loans started towards the end of 2021. Now, the talk about the increase has picked up momentum increasing the likelihood of the change. Several economists also predict the RBA increase to be possible.
How is this going to affect truck financing for everyone in Australia? By how much is the truck loan interest rate going to increase?
Here’s everything you need to know to prepare yourself for the rest of the year.
How the RBA Change Affects Truck Loan Interest Rates
Any change in the cash rate by the RBA will have a flow-on through lending markets including truck loan interest rates. This also applies to used truck loans, excavators, even machinery and equipment finance.
Despite truck loan interest rates being at historic low levels, the RBA change may drastically increase the interest rates for new truck owners this year.
The earlier talks for a rate rise came primarily from economic analysts and were specifically about the home buying market. Low interest rates motivated many to enter the property market, inevitably increasing the prices in the process. To mitigate this, increasing the rates again was the obvious option.
The RBA Comments on Rate Increases
We’ll gloss over the comments made by senior figures at the CBA and from the Treasure Secretary.
The CBA is one of the lenders that Yakka Finance is accredited with, along with all the major Australian banks, and other lenders. A senior CBA economist, Gareth Aird, reportedly expects the RBA to start raising the cash rate by June 2022. He also mentions that the increase in interest and inflation will be stronger than what the RBA is currently forecasting.
How Much Is the Rate Increase on Australian Interest Rates?
It has been predicted by some that the official rate could be increased from the 0.1% historic low to up to 1% during the latter part of 2022. This falls in line with RBA governor Philip Lowe’s statement, saying that he wants to see more quarterly inflation reports before increasing the RBA cash rate.
In a recent Senate hearing, the Treasury Secretary Dr Steven Kennedy commented that the cash rate needs to be increased to what he said was ‘normalising’. Still, Dr Kennedy, a member of the RBA Board, did not state a timing for any increase.
This increase will not only affect truck, vehicle, or equipment financing, but asset finance as a whole. Asset loans all across Australia could potentially have larger interest rates before the end of 2022.
Why Are Interest Rates in Australia Increasing This Year?
The RBA has continuously expected the rate rise to happen around 2024 and not 2022. According to them, the unemployment and inflation rate by 2024 would trigger a rate increase. Specific targets being inflation sustained in the range of 2-3% and unemployment around or below 4%.
The unemployment data for January was recently released and reveals an unchanged rate of 4.2%, the same as for December 2021. It is notable that this is the lowest in the past 13 years. This is in line with the RBA’s February Statement on Monetary Policy that the economy’s recovery after COVID variant Delta has not been ‘derailed’ by the Omicron variant.
As for the next announcements, they will most likely happen at the RBA Board meeting and the Federal Budget this March. Although the usual date for the Budget is May, it’s been moved sooner because of the possible Federal Election this May.
Ultimately, the Government alone can’t make the decisions regarding the cash rate without the help of other sectors. The policies made in this regard, with taxation incentives and other measures, will inevitably impact truck purchasing and asset finance.
Why this Affects Truck Loan Financing
With all this commentary, opinion and statement by high-profiles and analysts, the bottom line for truck buyers is what will a rise in interest rates mean to my truck loan? In basic terms, any changes to the cash rate flow through to lending markets will directly affect your loans. The amount that individual lenders will increase or reduce to their rates in response to the RBA move will be dependent on that lender. However, it is more likely for lenders to also increase their interest rates because of the RBA change.
Business finance including truck loans is not regulated in the same manner as consumer finance. Thankfully, Yakka Finance has lenders that are flexible and negotiable with truck loan interest rates. While we place an emphasis on always achieving better, cheaper rates, if the market goes up then it can be logically presumed that most lenders will react with a similar increase.
To work out what that may mean for your upcoming purchase, use our Truck Loan Calculator. Keep the loan, term and balloon figures the same and change the interest rate by small amounts to note the difference in repayments.
At this point, a rise in the cash rate and lending rates at some point in 2022 feels inevitable. While the increase may happen sometime this August, we’ll be regularly updating announcements and indicators for the change.
While the timing for investing in new vehicles is dependent on individual business circumstances, acting while rates are at their current lows could result in a decent savings compared with delaying that decision by several months.