1. Does the RBA set interest rates?

    We all hear about the Reserve Bank of Australia (RBA) in media, time and time again. Are they moving rates? Dropping/raising rates, what are the banks/credit unions going to do?

    But what does this really mean for you the consumer? This post covers one of the most common questions we’re asked about the RBA. We’ll be covering off a few more questions in other posts too.

     

    Does the RBA set interest rates for financial institutions?
    The RBA does not set interest rates for Australian financial institutions, despite common misconceptions. The RBA sets a target for the interest rate on overnight loans between financial institutions in the wholesale money market. The wholesale money market is the market where financial institutions borrow and lend to each other.

    The RBA then borrows and lends overnight money on the wholesale markets (i.e. influencing the supply of, and demand for, overnight money) to ensure the actual overnight interest rate remains as close as possible to its target rate. Other interest rates (e.g. on home loans, personal loans, term deposits etc) in the economy are influenced by this interest rate (and many other factors) to varying degrees, so that the behaviour of borrowers and lenders in the financial markets is affected by the RBA’s monetary policy.

    Two other key influences on other interest rates are credit risk and tenor (term). Most interest rates have two key components, a risk free base rate plus a margin to compensate the lender for the credit risk they’re assuming (i.e. the risk that the money won’t be repaid). Overnight money, and particularly Reserve Bank funding, has low credit risk and therefore tends to form the base rate for short term interest rates.

    The second key influencer on interest rates is term. For example, it is expected that a 30 year loan will have a different rate than a 1 year loan because of expectations/uncertainty about how interest rates might change over the longer term and the longer period over which the lender is exposed to credit risk. Government Bonds tend to form the risk-free base rate for longer term interest rates. These two factors will mean that the interest rate on, say, a 25 year home loan will be higher than the RBA’s official interest rate.

    If you have any questions about the RBA or about interest rates feel free to leave a comment on this post and I’ll get back to you.

    Wayne – Chief Financial Officer

    Posted on April 23, 2012 Car Loans Financial News & Updates Home Loans Money Expert 6 Comments

  2. Tips for buying a car

    Whether you are purchasing a new or used car, buying a car is a very exciting time – but there are many things to consider.

    Here are our top 10 tips:

    1. Once you’ve decided on your dream car, consider getting a pre-approved car loan so that you know exactly how much you have to spend. That way you have bargaining power when negotiating the final sale price.
    2. It is important to consider all of the features of the different car loans as well as the interest rate when comparing them, such as whether you can repay extra and if you can redraw those extra repayments and what loan fees you have to pay.
    3. You can research different car models, features, and prices on the Internet. The Red Book website www.redbook.com.au is useful for finding out the market value of used and new cars, especially if you have a trade-in to offer. Other useful websites include: howsafeisyourcar.com.au and greenvehicleguide.gov.au, which provides star ratings on environmenally friendly cars.
    4. If you are buying a car through a dealer, make sure you negotiate a ‘drive away price’ rather than a weekly payment plan. You may think that you’re getting a great deal by bundling finance and paying a low weekly rate, but beware – the repayment period may be longer than you think and in the end the total cost of the car could be far more than what you expected.
    5. If you want help finding a car, consider using Car Search Brokers Australia. They will do a national search for the car you want, help you get the best price without the run around and even arrange transport and registration.
    6. If you’re looking at a used car, ensure that it is not still under finance as it could end up being repossessed by the financier leaving you out of pocket. Visit REVS in NSW and ACT, EZY REG in SA and Bizline WA to conduct a search – they may even be able to tell you if the car has been stolen, written off or defected.
    7. Another smart option for used cars is to have the car inspected to ensure the car is mechanically sound through your local mechanic or automobile association.
    8. Use a checklist when looking at a car to help you focus on the important features so you don’t miss anything. Your local automobile association has handy checklists you can download from their website.
    9. Don’t forget other expenses, like stamp duty and insurance. It’s a good idea to get a quote for vehicle insurance before you buy the car so that you know your ongoing expense. Then once you’ve bought the car your insurer can start your policy immediately, giving you peace of mind.
    10. Keep in mind that it takes much more money to keep a car running than simply paying off the loan. On average, the total cost of car ownership is around 1.5 times higher than the cost of paying off the loan. Remember to budget for insurance, petrol and regular maintenance such as servicing, new tyres and registration.

    Posted on January 15, 2011 Car Loans Financial News & Updates Money Expert Leave a Comment

  3. Considering a New Car Purchase?

    Buying a new car is a very exciting time – but there are many things to consider!

    Once you’ve decided on your dream car, you should consider getting a pre-approved car loan so that you know exactly how much you have to spend. That way you have bargaining power when negotiating the final sale price.

    There are many different types of car finance available, and it is important to consider all of the features when comparing loans.

    To save time, you can research different car models, features, and prices on the internet. The Red Book website www.redbook.com.au is useful for finding out the value of used and new cars, especially if you have a trade-in to offer. If you are buying a car through a dealer, make sure that you are negotiating a ‘drive away price’ rather than how much it will cost per week. You may think that you are getting a great deal by bundling finance and paying a low weekly rate, but beware! The repayment period may be longer than anticipated and in the end be far more than you expected to pay.

    Finally, when buying a car there are a few other expenses to consider, such as stamp duty and insurance. It’s a good idea to get a quote for vehicle insurance before you buy the car so that you know your ongoing expense. Then once you’ve bought the car your insurer can start your policy immediately, giving you peace of mind.

    Posted on May 3, 2010 Car Loans Financial News & Updates Money Expert 8 Comments

  4. Buying a Used Car?

    I still remember my very first car, we went to look at it and because it was a manual (and I had only ever driven auto) my father took it for a test drive. I was as proud as punch when we got it home, I couldn’t wait to drive it for the very first time.

    I took it for a test drive in our neighbourhood so I could work out the gears. I took off from the roadside and sailed down the road towards the corner and went to turn the steering wheel…and nearly drove off the other side of the road! My dad didn’t tell me it didn’t have power steering, I didn’t even know cars came without power steering and I had never driven without it before! My arm muscles got very strong driving that little car!

    My first lesson in buying a used car was; make sure you ask all the questions before purchasing!

    I’ve created a checklist for you to look at before you make that big purchase;

    - REVS check (to make sure there aren’t any fines or money owing on the car)
    - Redbook (you can check the car’s estimated value to ensure you are paying the right amount)
    - Mechanic check- get your local mechanic to check it out so you don’t get any unexpected bills or worse stranded somewhere
    - Tread on tyres- make sure they still have some life left in them
    - Radio/CD player- does it work? And does it come with the car?
    - Seat reclines- does this work? (yep had that happen to me too)
    - Check for rust/panel damage
    - Registration- how long is left on the rego?
    - How much will insurance cost you? Can you afford it?
    - Check under car seat covers and mats as this could be hiding something.
    - Why are they selling it?
    - Test the air conditioning
    - Check the lights, blinkers, brake lights
    - Test drive the car

    What else can be added to the checklist?

    Posted on April 19, 2010 Car Loans Financial News & Updates Money Expert 4 Comments

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