The lending sector is about to enter very unfamiliar territory. The territory of increasing interest rates. The RBA will certainly move to increase the official cash rate at its May or June Board meeting. This is likely to be the first of several rate rises over the coming period as the central bank seeks to address the surge in inflation and, as some analysts have put it, claw back the decreases made to address the pandemic situation.
While the cash rate as set by the RBA is not the interest rate that borrowers are offered on a range of loans, this rate and any change to it, does directly impact the lending market. The lenders set their rates from this base and typically increase or decrease their rates in response to RBA moves. These increases and decreases in lending rates then impact those seeking to take on new loans.
What makes this ‘new’ territory is that there has not been an increase in the cash rate for about 12 years. Over recent years, interest rates have always gone down, not up. But the RBA dropped rates dramatically as a stimulus measure during the pandemic, placing the current rate at a historic low level. The economy bounced back more strongly than expected and inflation has now surged.
In the March quarter, the surge was from 3.5% to 5.1% which places the core inflation rate at 3.7%. A figure which is within the target for the RBA to act.
This new territory may require a revised rethink on the part of those seeking to apply for boat loans, in particular regarding no-deposit boat loans. While we strongly advise our customers to refer to a financial advisor regarding personal financial decisions if required, we provide this discussion piece on whether or not to opt for no deposit marine finance in the face of the prospect of rising interest rates. A take on thinking outside the square or in this case, outside the hull.
No Deposit Boat Loans: Defined
A no deposit boat loan refers to the entire purchase price of the boat being included in the secured boat financing. As such, no deposit is paid to the marine dealer or boat seller. Of course, some dealers will require the buyer to pay a holding deposit so they are assured that the sale will proceed. A holding deposit is usually refunded to the buyer when our lender settles the boat loan.
When interest rates are at historic lows, it may seem a no-brainer to take advantage of the low rates and borrow the full purchase price of the boat rather than use cash or savings to pay a deposit.
However, there are several ways to view the outcome of a deposit or no deposit.
Paying a deposit and hence not opting for no deposit reduces the overall amount of the loan, which reduces the total interest payable and can either reduce the repayments or bring forward the time when the boat is fully owned.
The Rethink
In a climate of interest rates starting to increase over coming periods, a rethink could be in order.
Follow this logic:-
- A rise in the cash rate flows through to both lending markets and savings accounts.
- Money held in savings accounts which were earning minimal interest in the low interest climate would start to earn more interest as rates rise.
- While it may have been a good idea to use savings to pay a deposit on a new boat while rates were low, when rates start to rise it may not be such an attractive option. Leaving those funds in the bank could be a more attractive option.
- Interest rates are tipped to rise several times – maybe in 2022 and then possibly in 2023.
- So interest on any savings has the potential to continue to increase with each rate rise.
- Now for the outgoings side of the discussion – boat loan repayments. Securing the boat loan with a fixed interest rate loan means that the interest rate on the loan remains at the rate originally achieved.
- So savings are earning more but the boat loan repayments and interest payable on the boat loan remain unchanged.
- So over the up to 7 years of the boat loan, think how much additional interest your savings account may be accruing by not using that money as a deposit.
For those mulling over the decision about a deposit boat loan or not, this may be worth considering.
Significance of Fixed Boat Loan Interest Rates
Jade Boat Loans offers a fixed interest rates on boat loans on our Secured Boat Loan. This is extremely significant as it means that the rate and the repayments will remain the same for the full loan term. Our customers have that assurance and can proceed with planning their budgets and other purchases over that period.
Boat loans secured before any rise in interest rates in general, which means soon, may have the added advantage of securing some of the cheapest interest rates ever available. Worth noting that the rates advertised are for loan applicants who have a good credit rating. To achieve the best interest rates, keeping the credit score in the ‘good’ range is very important.
Jade Boat Loans will continue to pursue better interest rates for our customers and with our vast lender panel, we are in an ideal position to source the cheapest rate to meet individual requirements at any particular time.
Contact Jade Boat Loans on 1300 000 003 to discuss no deposit boat loans
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.
