Will the RBA cash rate cut affect your personal loan?

Elizabeth Barry 3 May 2016

RBAPersonalLoan
Find out if you'll be able to benefit from today's RBA announcement of an interest rate drop.

Today, the Reserve Bank of Australia announced a rate cut of 0.25%, bringing the cash rate to a historical low of 1.75%. While many with variable rate home loans were tentatively celebrating and waiting to hear the news of whether their banks would pass on the cut, those without mortgages or with other debt such as personal loans may be wondering how the announcement would affect them.

What is the cash rate?

The official cash rate is the interest which is charged to commercial banks by the central bank on overnight loans. The cash rate is one of the main tools to manage monetary policy, inflation and the economy.

Are personal loans affected by the cash rate?

Technically, variable rate personal loans can be changed at any time during your loan term. As the cost of funding the loan is tied directly to the cash rate, your variable rate personal loan may change with the cash rate, but this doesn't happen regularly.

The interest rate of a fixed rate personal loan does not change during the loan term, so you won't see a change on those loans regardless.

The details CommBank provides to its customers on its websites provides some insights into the banks' thinking behind the cash rate and personal loans:

"In reality, banks borrow money for a range of terms, not just overnight funds. Funds providers also charge premiums both for risk and for locking the money away for a period of time. As a result, the cost to fund loans is tied in part to the cash rate and in part to the premiums charged by funds providers. To reflect this, we price our variable rate products (both deposits and loans) off the sum of the RBA cash rate and the premiums for risk and locking away the money."

So while variable rate home loans are expected to change with the cash rate, it is an entirely different story with variable rate personal loans. Comparing loans to identify the most affordable before you commit remains the best strategy.

More great ideas from finder.com.au

Get a life insurance quote
Get a life insurance quote

Find out what it costs to protect yourself and your family

More info...
Refinancing home loans
Refinancing home loans

Choose from offers with rates as low as 3.39% p.a.

More info...
Google Pixel
Google Pixel

Compare plans for Google's flagship Android phone

More info...
Christmas ideas
Christmas ideas

Visit our Christmas homepage for gift ideas, markets, travel & deals

More info...

Ask a Question

You are about to post a question on finder.com.au

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com.au is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Disclaimer: At finder.com.au we provide factual information and general advice. Before you make any decision about a product read the Product Disclosure Statement and consider your own circumstances to decide whether it is appropriate for you.
Rates and fees mentioned in comments are correct at the time of publication.
By submitting this question you agree to the finder.com.au privacy policy, receive follow up emails related to finder.com.au and to create a user account where further replies to your questions will be sent.

Ask a question
feedback