Major Car Finance Forecast for 2014
- Car loan interest rates on hold
- Dropping $AUD could push up the price of imported new cars
- Buy now to insulate yourself from potential rate rises in the 3-5yr term, and also to protect against imported new car price rises flowing from lower Australian dollar value
There’s a perfect storm under way for car buyers in 2014. Here’s why:
The Reserve Bank of Australia is trapped between a rock and a hard place on interest rates. The economy keeps threatening to slide into recession thanks to our resources going off the boil in China – but cutting rates further could overcook a red-hot housing market. In a nutshell, that’s great news for you, if you’re in the market for a new car in 2014.
Interest rates are at historic lows following a staggering eight rate cuts by the reserve bank since 2011. The cash rate is just 2.5 per cent – so if your bank tells you the best they can manage is a nine per cent car loan, tell them to go take a running jump. Contact me via the website at AutoExpert.com.au because plenty of reputable Australian lenders have finance much closer to seven per cent. That’s a significant saving over the term of the finance.
Rates are low because the Reserve Bank slashed them to avoid economic recession. To some extent that worked, but the broader economy is still skating on thin ice.
Rate cuts boost investment by making cash more available because money’s easier to borrow. More money equals more spending equals healthy economic growth.
That’s good for you, if you want to buy a car, or property. Money’s cheap to borrow. But it’s not so hot for the Reserve Bank, which jumped into 2014 trapped inside a prison of its own making.
That’s because all those rate cuts broadly failed to deliver the kinds of growth the Reserve Bank wanted to see. Growth was just 2.3 per cent for the full year to last September. China doesn’t want as much coal and iron ore from us, which is a major economic bummer, so there’s a kind of economic polar vortex hovering over Australian resource companies – and no other industry sector has jumped in to fill the void, mainly because the dollar remains historically high. Even at 90 cents US.
That means Australian exporters and manufacturers still have their heads in an economic vice – because no matter how efficient they become, the price is still too high overseas, thanks to the dollar.
With the mining boom fading away and nothing set to replace it, more rate cuts might seem like a good idea. Except the housing market is red hot. Lending in the property sector surged more than eight per cent in last October, after prolonged stability. Cutting the cash rate would pour petrol on the property boom, which is already well alight, and prices would spiral even further out of control.
The Reserve Bank will probably try to talk the Aussie dollar lower, to ease the pain experienced by exporters and manufacturers. In economics they call it ‘jaw boning’ the currency. Talking it down.
If you’re in the market for a car, rates are on hold for the foreseeable future. Which means new cars have never been more affordable.
If you lock the finance in now, you’ll be insulated from interest rate rises for the next three, four or five years – because car finance is typically arranged at a fixed rate.
But with the dollar heading south, there will be general upward pressure on the price of most cars – because 90 per cent of the new cars sold here in Australia are imported.
You’re standing in the middle of a car finance perfect storm – and the ball’s in your court. Low rates and cheap cars will be a hallmark of 2014 – but there’s no guarantee the cars will stay cheap for the whole year. If you need a new car it’s a great time to act now. [TURN TO CAM 2]
Drop me a line in the comments section below if you’re in the market. It’s easy to get cheap finance from a reputable lender, and there are huge discounts available on most new cars. Unfortunately it’s equally easy to get ripped off by a car dealer if you don’t know the tricks of the trade.