Something that hasn’t happened in a long time is now occurring with lending interest rates. They are increasing across all lending markets. Interest rates in lending markets such as boat finance, vary according to the timing and amount of changes in the cash rate as determined by the Reserve Bank of Australia (RBA). The RBA sets the cash rate and from that point, the lenders then allow for their guidelines and costs in setting the rates they will offer on their different loans.
Up until May 2022 the RBA had been cutting interest rates for around 12 years. The RBA makes decisions based on the economic conditions and outlook, both on a domestic and global basis, at the time. The Board of the RBA meet on the first Tuesday of each month (excluding January) to make decisions about interest rates.
Conditions over recent years have been suited to the RBA cutting rates. When the COVID-19 pandemic first emerged in Australia, the outlook was dire for the economy. As part of the stimulus measures to mitigate the risk of the worst-case scenario, the RBA cut rates. They proceeded to slash rates several times in 2020 until reaching that historic record low of 0.1%.
But now economic conditions have picked up, inflation is surging and the RBA has responded with rate hikes. That has resulted in increases in interest rates on many loans. So far we have seen the RBA increase rates in May 2022 followed by June and July.
When rates change in either direction, there is a lot of media coverage about what home mortgage holders should do regarding their interest rates. The question is typically around fixed or variable interest rates.
With the predominance of this discussion in the press, it is worth understanding fixed and variable interest rates in the boat finance sector. For those planning on buying a boat with finance, this understanding may assist in deciding whether to opt for a fixed or a variable interest rate boat loan.
Fixed and Variable Rate Boat Loans
The interest rate scenario in the home loan market is different from that for marine finance. Home loans are typically for much longer loan terms than boat loans. As such there is a much greater chance that rates in general will change one way or the other over the say 20 year home mortgage term.
With home loans, fixed rates are usually ‘locked in’ for a limited time, not the entire loan term. In some cases 2-3 years. After that expires, mortgage holders need to renegotiate their loans or rates. With a variable rate loan, the loan payments will vary according to changes in rates.
With boat finance, a fixed boat loan interest rate applies for the entire term of the boat loan. This can be up to 7 years. So there is no need for loan holders to address or renegotiate their loan at any time.
With a variable interest rate boat loan, the rate will change by the individual lender’s decisions and this will alter the repayments.
The decision around which is preferable – fixed rate or variable rate, can come down to several factors: the type of boat loan available to suit the boat and the outlook for interest rates over the term of the loan.
Boat Loan Selection
Boat loan types can vary across the lending market. Different banks and lenders may offer slight variations in their boat loans and the loan may be at a variable or a fixed interest rate. We’ve compiled a table of the loans available for boat purchases currently offered by several lenders. This shows the type of loan, type of rate and the current best interest rate.
We offer our Secured Boat Loan, the most commonly used type of loan for many boats, at a fixed interest rate. This type of loan will suit most buyers, especially of new vessels. The lender accepts the boat as security against the loan, the rate, repayments and terms are fixed.
If especially requested, we can source boat loans at variable interest rates.
We also offer an Unsecured Personal Boat Financing for boat buyers where the boat is either not available as security or where it is not accepted by the lender as suitable security. This may be shared boat situations, restoration projects and some older, used boats.
On unsecured loans, the interest rate may be a variable or a fixed rate.
Boat Loan Interest Rate Outlook
Selecting a variable rate loan, could in some ways be seen as predicting or expecting that rates will go down at some point during the boat loan term. If that occurs, the rate and repayments could be adjusted accordingly. In the current scenario, is that likely? On the other side, if interest rates continue to go up, then variable rate boat loans are also subject to increases.
After 20+ months of historic low interest rates, the RBA is now returning rates to more normal levels as the support provided through the low rates is not seen as necessary. The economy is recovering. The cash rate has already been increased by 1.25% over the past 3 months and the RBA has indicated that further rises will be in store in coming months.
The rate rises are a measure to curb soaring inflation which the RBA expects to return to their target range of around 2-3% in 2023. The current rate is 5.1% and that is expected to rise to around 7% before falling.
As the cash rate is normalised and inflation returns to the RBA’s target range, rates may remain steady. But it all depends on what happens in the economy including global impacts.
Cheap Rates – always the way to go
Whichever loan type – variable or fixed rate, a buyer selects, sourcing the cheapest rate is always the preferred course of action. Our consultants focus on sourcing better interest rates from across our lender panel and the loan that is the best fit for our customers.
Securing a fixed interest rate boat loan provides the benefit of knowing that the rate and the loan repayments will remain unchanged over all the years of the loan term. This can be not only an assurance but also allows for budgeting and proceeding with other purchases with finance.
Contact Jade Boat Loans on 1300 000 003 to discuss which boat loan best suits your requirements
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.