Benchmark Interest Rate

Does anyone know where I can find the benchmark interest rate given to Banks (NSW)? I am doing a private loan and want to know what interest rate to negotiate.

This is all i found:
Division 7A - benchmark interest

But it doesn't really look right. Banks interest rates are like in the high fives... and the benchmark is only at mid 5s.

 

No such thing as a benchmark interest rate other than with div 7A

 

So if the "cash rate" is 1.5% according to the RBA
How do we get charged 4-5% ?
# profiteering....

My kinda mark up !

 

The RBA just sets the inter-bank clearing rate.

Australian banks source most of their funds from lenders who expect a return, and most are overseas.

 

But there are so much different interest rates, you could have savings interest rate, loan interest rates, personal interest rates... and with each category it can be broken down to other types like interest only, variable, fixed, principle and interest. And it all differs.

So how can I use div 7a as a benchmark?

 

Unless it is a div7A loan you don't have to use these benchmarks

 

As Terry says, it is simply not relevant to you unless you are a shareholder (or associate) in a private company and wish to get a loan from that company (Div 7A).

 

I commonly see loan agreements which use a reference rate and a margin. Even banks do this for commercial loans.

eg The CBA owner occupied variable mortgage rate plus 1.5%

Be careful its a actual workable reference. You cant refer to a fixed rate loan rate without creating confusion !! Generally the base rate is a owner occupied home loan rate, a major bank (as they publish these weekly) and a margin. Lawyers have been drafting these for a long time

 

Okay so div7a doesn't apply to me?

So if the bank offers a loan at 5.5%, what is the acceptable range I can set for a private loan (both sides up and down) -

4.5 - 6.5%?

 

Are you borrowing from a company or a trust?

What is security for the loan?
Will interest be claimed?
What is the source of the funds to be lent?

 

In many instances a prudent strategy is to back to back the bank loan. This helps with accounting for the loan and the bank loan amount is identical to your related party loan. It also may avoid a Part IVA concern if you engineer a tax outcome that could pose a problem.

eg Gifting $$ to spouse who lends to related entity and spouse has no taxable income.

There are tax issues and legal issues surrounding loans that both need consideration. eg : What happens if party A dies ?

 

Loan from parents, we are going to get this drawn up formally via solicitor but deciding on what interest rate.

 

Where are they getting the funds?
What security?
Will you want to claim the interest?

As a guide 0% to 10% could be the way to go.

 

Non resident ? Pensioners or self funded retirees ?
As soon as their tax issues are a factor you risk a denied deduction. In 1 or ten years.

 

Why ?

Are you trying to make it a loan on commercial terms so that the borrower qualifies for tax deductions on the interest ?

You still have not answered questions on loan terms, e.g. secured/unsecured, interest-only or P&I, duration, etc.

This will help you identify appropriate commercial rates.

 

I think div7a is the wrong benchmark reference. Nothing commercial about my loan.

Just a straight forward loan with parents interest only. Haven't decided on terms yet. They will declare the interest as income to the ATO. Better than a term deposit for them