A variable rate boat loan will change – rate and repayment, when the lender changes rates either with an increase or a decrease, with market fluctuations. This contrasts with fixed rate loans which remain at the rate arranged when taking out the finance for the entire term. After an interest rate increase by the Reserve Bank there is an expectation that eventually rates will start coming down. Lenders typically follow RBA decisions, with rate fluctuations dependent on economic conditions, especially the rate of inflation.
In market conditions where rates have increased, buyers planning to buy a boat with finance may be considering their options. Primarily, if they should take out the loan at the current fixed rates or opt for a variable rate. The reasoning for opting for a variable rate may be to take advantage of opportunities of lower rates when the market shifts into a downward cycle. Variable rates may reduce over the term, if rates start going down, while a fixed rate would not.
To assist buyers better understand the interest rate market, we compare the marine finance options available and workshop a range of possible scenarios in the current market.
What is a variable rate boat loan?
A variable rate boat loan is marine finance for watercraft which has an interest rate subject to lender changes with market fluctuations. Variable rates can change when the lender decides to alter their interest rate – up or down, on that particular credit product. These changes typically occur when the Reserve Bank announces changes to the cash rate.
When the interest rate on loans changes, the monthly repayments also change. These types of loans may be used to finance the purchase of many types of marine vessels.
Comparing a Fixed and Variable Rate Boat Loan
Interest rates are crucial to the repayments and the total interest that the loan attracts over the term. When comparing rate types and rates from different lenders and lending products, look not just at the repayment estimate but also at the total interest that accrues at that rate. Use our Rate Comparison Table as a calculator to carry out comparisons.
Locking in marine finance at a fixed rate in the current market (after the recent cash rate increases), means that rate will remain over the full term of the loan. There will be no change to that rate even if rates across the market are cut or increased over the term. That also means that the monthly repayments will remain unchanged.
Compare this with securing marine finance at today’s variable rate. This rate and the repayments will be subject to change over the term.
Variable rates can be higher than fixed rates, depending on the credit product. Borrowers opting for a variable rate loan may start the finance term at a higher level than those on fixed rate loans. Depending on individual applications and lenders.
The type of rate available can depend on the credit product. We offer Secured Boat Loans and business asset finance facilities at fixed rates. Unsecured Personal Loans, which are used primarily for older boats and share-boat buyers, can have either fixed or variable rates. Some lenders only offer personal loans for consumer goods at variable rates.
Possible Outcomes for Variable Rate Boat Loan
To consider what may happen to a variable rate loan over the finance term, review the information in the latest RBA Board decision – the March Monetary Policy Statement and reflect on rate fluctuations over recent years. We saw how long it took the RBA to start cutting interest rates as inflation started to ease after COVID. The recent March increase was partly as a result of surging petrol prices which were the result of global impacts. Impacts which are virtually impossible to forecast.
However, the major concern for the RBA at the moment is the rate of inflation. It is too high and has been edging up in the most recent data reports from the Australian Bureau of Statistics (ABS). Should the RBA Board consider inflation has become embedded, they would be highly unlikely to announce a rate cut. Some analysts have predicted a further rate increase announcement from the RBA in coming months. If inflation does start to settle with no further increases, an extended period of rate holds may be the more realistic expectation.
In the event of no change to the cash rate or lender rates over the initial term of a loan, both fixed and variable rates would remain unchanged. Borrowers with a variable rate, paying a higher rate than fixed rate borrowers, would continue to accrue more interest on their loan.
Should rates across the market fall significantly in the early part of a finance term, the variable rates would be cut while fixed rates remain unchanged. The decision for buyers is do they think rates would fall sufficiently to offset the additional interest accrued?
For both variable and fixed rate loans, refinancing during the term is an option. Should rates fall significantly say in the 3rd year of a 5-year finance term, borrowers may consider refinancing. This may allow fixed rate borrowers to switch to a lower fixed rate loan. Costs associated with refinancing and that the boat would be assessed as second-hand, need to be considered.
While we source customers finance, the decision whether or not to accept the offer we have sourced is totally with the customer. Request quotes for the loans and rates you would like to consider and discuss the possibilities with one of our brokers.
To discuss if a fixed or variable rate boat loan is your most suitable credit option, connect with Jade Boat Loans on 1300 000 003 for quotes.
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 MISPRESENTED DATA AND DETAILS HEREIN.
