The talk around the Reserve Bank of Australia (RBA) moving to increase the cash rate has been increasing in intensity for some months. Now, with the release of the latest inflation figures, that rise can best be described as imminent. It may happen at the May meeting of the RBA Board or the latest, most pundits suggest June. With an interest rate rise imminent across the lending markets which will include boat loans, having a good credit rating moves from important to critical.
The lowest boat loan interest rates which are published and advertised by banks and other lenders will relate to those that have a good credit score or rating. While rates in general have been at record and historic lows since November 2020 when the RBA cut the cash rate to 0.1%, that good rating may not have been as important. Even if the loan applicant’s rating was less than ‘good’, an attractive interest rate and relatively cheap boat loan may have been highly possible.
But with rates set to creep up, those wanting to secure the cheapest interest rates will need to have a good credit rating. The credit score or rating for an individual is essentially the risk factor from the viewpoint of lenders. Low score – high risk. High score – low risk.
The risk factor shows the track record of the applicant in paying debts on time, how much credit they currently have and other issues relevant to lenders. High risk – higher interest rates and possible additional loan conditions. Low risk – lower interest rates and possibly more attractive loan conditions.
That is the blunt and direct assessment and those intending to purchase a new boat with finance in the coming times should seriously look at their credit rating and take whatever steps are possible to ensure their credit score is as high as possible. That is if they want the cheapest interest rate and the most attractive loan offer.
While your Jade Boat Loans consultant will be negotiating hard with our lenders to achieve the cheapest and most suitable loan outcome, the credit score is the responsibility of our customers.
We provide this explainer of what a credit rating is, how credit scores are calculated and what individuals can do to improve both their rating and the risk factor before applying for marine finance.
Credit Rating and Credit Scores
Rating and score mean the same thing in the discussion of credit profiles. A credit profile is not something that individuals need to set up themselves. It is essentially created when a loan is applied for and that includes credit cards or possibly when an account is set up. Accounts may include power companies and telcos and rental payments can also be reported on a profile.
There are Credit Reporting Agencies that record and store credit profiles. When a loan application is submitted, applicants provide approval for the lender to access that information to assess the applications.
Entries are made onto a credit profile when a loan application is made. Arrears in paying debts and bills are also recorded. This shows the payment record for the individual. If it shows a trend of slow payments or arrears or defaults, this significantly increases the risk and lowers the score. The score itself is calculated based on a formula. Good scores can be as high as 1,000 or 1,200 and the range starts from 0.
The agencies that compile and store credit profiles include Illion, Equifax and Experian. Individuals can request a copy of their credit profile. This can be provided free of charge if you head to the right channels. For reliable information on how to do this, head to the Moneysmart website. It covers a wide range of issues regarding credit scores and profiles and especially how to acquire a free copy.
Companies like Credit Simple, Canstar and Finder provide free copies but some conditions may apply to the request. Moneysmart does issue a key warning regarding accessing credit profiles – that is individuals should avoid requesting a copy from businesses that ask for payment especially those that ask for credit card details.
When the profile is received, individuals can check all the entries to see if they are genuine, accurate and related to them. If some do not relate to the individual it may mean their identity is being used to apply for credit. There is a process whereby individuals can strive to fix any errors. Don’t be fooled by companies offering to erase all the negative entries on a report. The agencies holding this information can only fix the errors.
Better Credit Rating – Lower Interest Rate Boat Loan
As we said upfront, the better the rating the better the interest rate on the boat loan is a general rule. Apart from fixing errors on a credit profile, there are ways that an individual can work towards maintaining a good credit score and in general improve their balance sheet.
The credit score is one issue of the lender assessment, the personal balance sheet is another factor. That is the assets compared with liabilities. To improve the balance sheet before a loan application, pay down debt. That can mean reducing how much is owed on credit cards or paying out other personal loans.
Keeping on top of regular bills and payments is essential to maintaining a good credit score. Pay bills by the due date. If you tend to overlook or forget, look to setting up a direct debit so the bill is always paid on time.
Another tip that many individuals would not generally be aware of is that every time an application for a loan is made, this is reported to the credit reporting agencies and listed on the profile. Multiple applications can appear as desperate to some lenders.
When seeking the best boat finance option, buyers may think they are taking the diligent course by applying to several banks and lenders to acquire the cheapest boat loan offer. But actually, this diligence may be negatively impacting their credit rating.
This scenario can be avoided by using a broker such as Jade Boat Loans to source the cheapest boat loan. While we have access to multiple lenders through our accreditations, when we contact and request quotes from our lenders, these contacts/applications are not reflected on the individual’s credit profile.
If you are sceptical of how important the difference in interest rates is, have a look at our interest rate comparison. Note the difference in repayment estimates with higher and lower rates. In summary, with rates set to creep up, individuals can place themselves in a better position to secure the cheapest interest rate on their boat loan by addressing their credit rating.
Contact Jade Boat Loans on 1300 000 003 for a quote on marine finance.
DISCLAIMER: THE INFORMATION AND SPECIFIC DETAILS CONTAINED IN THE CONTENT OF THIS ARTICLE HAVE BEEN PREPARED AND ARE PRESENTED PURELY AS GENERAL INFORMATION AND NOT INTENDED AS THE ONLY SOURCE OF FINANCIAL ADVICE FOR BOAT BUYERS AND LOAN BORROWERS. FOR THOSE THAT CONSIDER THEY REQUIRE SPECIFIC ADVICE, THEY SHOULD CONSULT WITH A FINANCIAL ADVISOR. LIABILITY IS NOT ACCEPTED IN REGARD TO ERRORS AND MIS-PRESENTED DATA AND DETAILS HEREIN.