RBA rate hike should light a fire under borrowers
04 May 2022
The Reserve Bank of Australia’s decision to raise the cash rate for the first time in over 11 years marks the end of the cheap loans era, with borrowers urged to take a closer look at their funding arrangements.
“Today’s rate rise announcement should light the fire under leveraged individuals, investors, and businesses to re-examine their borrowing arrangements to ensure they can weather further interest rate hikes,” says Darren Stacey, national leader of finance solutions at BDO in Australia.
“Borrowers should start shopping around for the best deal. If their financial position has improved since they last spoke to their bank, they should approach them again. They may be eligible for a lower interest rate which will offset some of the potential cash rate rises,” he added.
“They should also review their arrangements and stop paying for things they do not need. Certain loan features such as lines of credit or offset accounts all come with a higher interest rate. Many loans also have fees applicable even if they’re not drawn substantially. If you can simplify your arrangements and qualify for a cheaper loan, this will shield you from some of the pain of rising rates.”
Mr Stacey has also urged business owners to consider rising expense pressures in their organisation that may coincide with the increased cost of debt.
“If you expect your financial position to tighten up in the next 12 months, take action early to address it. If you need more headroom in your loan or your working capital facilities, have that conversation with your bank now before the situation deepens,” said Mr Stacey.
“Businesses looking to borrow more money for their next purchase or expansion should think about the structure of their loan arrangements and how to efficiently access the cheapest form of funding available.”
“Longer term funding costs have started to widen when compared to short term financing, but for organisations with significant debt requirements, having funding certainty during the medium term may make it worth securing long term debt.”
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