Ways To Avoid The Rising Interest Rates in Business Loans in New Zealand
Interest rates are famously known for their changes and are hard to predict. The recent jumps in figures seem to have surprised the economists. The Reserve Bank of New Zealand increased the Official Cash Rate (OCR) two times in the last two months to 0.75%. They may raise it even further for economic stabilization at the upcoming review. Any changes in the OCR directly impact the interest rates.
Do you want to know how to avoid rising interest rates in business loans in New Zealand? Though we do not have a clear picture to predict the future, here are some tips to avoid the stress of increasing rate of interest:
1. Always try to get asset finance or any other business loan at a competitive interest rate
While selecting a financial loan, always go for the funding within your budget. Whether you are taking a mortgage to buy a home for the first time or bridging finance for business use, the repayments must be in your budget. Only borrow what you can afford to repay. Interest rates vary from lender to lender and depend on the type of finance you are applying for. It is a good idea to shop around to find the best rate available for the funding that suits your needs.
The same goes if you already have a business loan in New Zealand. Keep an eye on the interest rates if you have a variable rate loan. You could consider refinancing or consolidating your debts into one easily managed loan. Thus, you can redirect this saved money to your business loan. This way, you are paying off the debt much quicker and with a cheaper interest rate.
The rise in the interest rates of asset finance does not mean that you cannot mitigate the costs associated with the loans by paying it off in a lesser time.
2. What to choose: Variable interest rates or fixed rate of interest?
Many times, the rate of interest of bridging finance is almost always a fixed rate for one year this can be a good option as your monthly payment will never change. The loan can also sometimes be extended for another year if you have maintained good conduct over the term. It was observed during the initial days of the Covid-19 pandemic that people had a certainty of at least 12 months. Such people can take advantage of the change in case the rate of interest drops even further. Always take advantage of such situations. However, things move quickly in the world of interest rates.
New Zealand’s current average variable rate is 4.59%, and the average rate of two years is somewhere between 4.25 to 4.35%. These figures are not that bad compared to the rates of 2008 that touched sky heights of 10.72%. But there are many changes in the economy and higher interest rates of business loans New Zealand on the horizon.
So you should be prepared for all the ups and downs that the financial market is known for.
If you take a mortgage for a longer duration, like two or three years, it is better to go for a fixed interest rate. This duration might seem not too long, but fluctuations can occur in the loan market. You can get certainty for the next few years if you fix the interest rate of asset finance. The decision between the two comes down to whether you want flexibility or security.
End Thoughts
For business and bridging finance borrowers, there is no easy solution when it comes to navigating interest rate changes. But there are ways to prepare you to deal with the extra cost of increasing rates. Increasing your repayment amounts will keep you ahead and make your life less stressful.
