By Mary Nebotakis, Managing Director, Natloans, B. Eco, Dip. Financial Services
The Reserve Bank of Australia (RBA) has cut the official cash rate by 25 basis points this August, moving it down to 3.6%. While this is a smaller adjustment than some economists anticipated, even modest rate changes can have a real impact on loan repayments — particularly over the long term.
Why the RBA cut rates
Rate changes are one of the RBA’s tools for influencing the economy. A cut in the cash rate generally lowers borrowing costs for households and businesses, which can stimulate spending and investment. Lenders often pass on these reductions to customers in the form of lower interest rates on mortgages, personal loans, and business finance.
Even a 0.25% decrease may seem minor, but across large loan amounts and long repayment periods, the cumulative savings can be substantial.
What this rate cut means in dollar terms
To put the change into perspective, here’s how a 25 basis point cut could affect different types of loans:
Personal Loan — $30,000 over 5 years
- Before cut — 6.75%: $590.50/month
- After cut — 6.50%: $586.95/month
- Saving: $3.55/month ($213 over the loan term)
Car Loan — $50,000 over 5 years
- Before cut — 5.99%: $880.39/month
- After cut — 5.74%: $874.29/month
- Saving: $6.10/month ($366 over the loan term)
Home Loan — $500,000 over 30 years
- Before cut — 5.50%: $2,838.95/month
- After cut — 5.25%: $2,761.02/month
- Saving: $77.93/month ($28,054.80 over the loan term)
These examples show that even a small reduction can add up — especially for larger, longer-term loans.
Opportunities for different borrowers
Homeowners & Property Buyers
- Refinancing may allow you to secure a better interest rate before the next rate change.
- A split loan (part fixed, part variable) can provide flexibility while managing risk.
- Buyers with pre-approval in place can move quickly in a competitive market.
Personal & Car Loans
- Lower rates can improve monthly cash flow, even if the change is modest.
- Lenders may sharpen their offers for new loans or vehicle upgrades.
- Debt consolidation can still make a meaningful difference to your budget.
Business Owners
- Reduced borrowing costs can boost cash flow for expansion or upgrades.
- Refinancing existing loans or overdrafts may provide immediate benefits.
- This could be an ideal time to prepare financing ahead of the next growth stage.
Key takeaway
The RBA’s decision to cut rates by 0.25% might be smaller than expected, but it still creates opportunities to save money or improve your financial position. Reviewing your loans now could help you take advantage of today’s lower rates — and be well-positioned for any future changes.