Interest Rate Rise

What Does an Interest Rate Rise Mean?

Do you also have the question, ‘how much will interest rates rise’? The Reserve Bank of Australia (RBA) recently announced the cash rate has been set at 2.35%. This can have a significant impact on borrowers, as interest rate rise mean increased loan costs. It is important for individuals to consider how rising interest rates may affect their finances and how to best prepare for any additional expenses that may arise. 

The Reserve Bank of Australia (RBA) sets the official cash rate on the first Tuesday of each month excluding January. This cash rate is a key indicator that informs financial institutions, such as lenders and banks, and their interest rates. When the RBA makes changes to the cash rate, either raising or lowering it, financial institutions generally adjust their own interest rates to follow suit. As such, when you hear news that interest rates rising, it is likely that this reflects an increase in the RBA’s cash rate.

What Happens When Interest Rates Rise?

The Reserve Bank of Australia (RBA) has recently raised the cash rate to limit spending in times of inflation and encourage spending in a stagnant economy. This change in interest rates has implications on both sides of the equation – while savers may benefit from increased returns, borrowers will face greater costs when accessing loans. Ultimately, the RBA’s decision affects the broader economy in multiple ways.

Financial institutions are not obligated to follow the Reserve Bank of Australia’s (RBA) cash rate, however, it is regularly taken into consideration when setting their own interest rates. This can be a tempting factor to consider when deciding how and where to store your money, whether in a high-interest savings account or otherwise. It is recommended that those looking to make such financial decisions speak with their bank to gain a thorough understanding of how their interest rates may be affected.

Impact of Car loans interest rates rise

The impact of changes ON car loan interest rates is dependent on the type of loan, its expiration date and the lending institution. Variable rate car loans linked to the Reserve Bank of Australia’s cash rate may experience immediate effects in the form of rising monthly repayments. Those with this type of loan may have already observed an increase in payments.

Individuals with standard variable rate car loans may expect to experience an increase in repayments correlating with rises in interest rates. Nevertheless, the extent of this increase is contingent upon the lender, and cannot be predicted definitively.

If you are concerned about the potential of rising interest rates on your car loan, it is advisable to speak with your lender. Additionally, examining the terms and conditions outlined in the original document is recommended. Those with fixed-rate car loans will only experience an effect when their current deal expires. When seeking a new car loan, taking out a fixed-interest rate loan may aid in avoiding rate increases later down the line

Have a Financial Plan in Place

As the Reserve Bank of Australia (RBA) has implemented a number of dramatic rate rises, financial experts suggest that having a finance plan to prepare for further potential increases is sensible. While a 0.25% or 0.5% rate rise may seem insignificant, consecutive incremental rises could lead to costly outcomes for individuals and businesses alike.

While looking for a loan expert near you, contact Winning Wealth Finance as we provide loan mortgage and loan refinance in Melbourne, Perth, Adelaide, Brisbane, and Gold Coast. Get in Touch with the most trusted home loan broker in Melbourne. You can also use our loan repayment calculator, loan comparison calculator or car loan calculator.

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