Interest rate increases – the real effect on equipment finance

With so much press focusing on the significant home loan and interest rate increases, it is timely to have a look at the real effect on equipment finance and what this means for businesses.

Where the 5-year fixed home loan rates increased to around 6.5%, it won’t be surprising to see that motor vehicle and equipment finance also have interest rate increases, moving into the 7%+ range.

As recently as 1 year ago, home loan rates and equipment and motor vehicle finance rates were around 3% or lower. So, what is the real effect on equipment finance and home loans that these interest rate increases will have in real terms?

 

Unlike home loans where a doubling of the interest rate resulted in an increase of 45% or 100% in the monthly payment, the monthly payment effect on the equipment finance loan was much lower at around 8%. This is simply due o the shorter term where the entire debt is fully paid off over 5 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.

In summary, 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 & adjust pricing accordingly
• Utilise the expertise of a finance broker to seek out the most favourable equipment finance solutions