With so much press focusing on the significant increases in home loan rates and interest rates in general, it is timely to have a look at what this means for businesses. Finlease provides some answers.
Where the five-year fixed home loan rates increased to around 6.5 per cent, it won’t be surprising that motor vehicle and equipment finance interest rates have also moved into the seven per cent plus range.
As recently as one year ago, home loan rates and equipment and motor vehicle finance rates were around three per cent or lower. So, what is the effect of these interest rate increases in real terms and how may this affect your business moving forward?
Unlike home loans where a doubling of the interest rate resulted in an increase of 45 per cent or 100 per cent in the monthly payment, the monthly payment effect on the equipment finance loan was much lower at around eight per cent. This is simply due to the shorter term where the entire debt is fully paid off over five years.
In a world where businesses are seeing increased costs across the board in such areas as labour, materials as well as the actual purchase cost of vehicles and machinery, the cost of debt (interest rates) is also one of these increasing costs.
Businesses today can:
· Access the Finlease calculator on our website to test payments on a range of interest rates
· Review your costs of doing business and adjust pricing accordingly
· Utilise the expertise of a finance broker to seek out the most favourable equipment finance solutions
So how long can we expect these increases before we reach the peak?
The reality is that the harder you hit the brakes, the sooner you slow down the inflation, however if you hit the brakes too hard, you risk stalling the economy, which can lead to a recession. The RBA will need to closely monitor this to get the balance right.
The best intel we can see at this stage, is around 12-18 months, or when inflation returns to the two to three per cent band required by the RBA to stabilise inflation to an acceptable level. Once this band is achieved, we can expect interest rates to remain at the level required.
Finlease is a sponsorship partner of APPMA. To find out more about equipment finance solutions, get in touch with Scott Kemp from Finlease by calling 0448 400 141.
