Do RBA Rate Changes Affect Auto Loans?

Everyone knows that any change the Reserve Bank of Australia (RBA) makes to the spot rate will have an effect on home loans, but can it impact your car loan in the same way?

While there is generally no direct correlation between the RBA spot rate and auto loan interest rates, some lenders have been seen to cut rates on some auto loan products as a result of both. last spot rate cuts in March of this year.

The RBA had kept the spot rate at 0.75% since October last year before making a 0.25% cut at its March meeting, followed by an off-cycle cut of another 0 , 25 percentage point in the same month. At his August meeting this week, he kept the spot rate at a record high of 0.25% for the fifth consecutive month.

In January, before the cuts, the lowest auto credit rate on RateCity.com.au was 4.19 percent. By comparison, the lowest rate is now 2.99%.

Historically, however, auto loan rates have generally been much higher than mortgage rates. This suggests that auto loans generally don’t tend to follow RBA spot rate changes the way home loans do.

What other factors determine auto loan interest rates?

There are a number of factors that can affect auto loan interest rates, most notably the rates offered to you. These include:

  • Type of loan: Some lenders will allow you to choose between a secured auto loan, where the car is used as collateral for the loan, and a unsecured auto loan, where it is not. Lenders tend to charge higher interest rates for unsecured auto loans because they view them as a higher risk than secured auto loans.
  • Car type: If you buy a ‘green’ or eco-friendly car, you may be able to access green car loan options that have lower interest rates than regular auto loans.
  • Age of the car: If the car you’re looking to buy is new or less than five years old, you may be able to get a more competitive interest rate than if you bought an older vehicle.
  • Credit rating of the borrower: Some lenders are considering the borrower’s credit rating to determine if they would be a good borrower and pay off the debt on time. Some peer-to-peer lenders use risk-based pricing, so the rate you pay is determined by the level of risk you pose on a sliding scale.

If you currently have an adjustable rate car loan, it might be time to compare what is available and consider negotiating with your lender for a better deal.


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