The new hike in the repo rate announced by the South African Reserve Bank (SARB) has put even more pressure on car buyers to eke out the most from their money – thus strengthening the case for looking at pre-owned vehicles on portals such as Carshop.co.za.
The hike in the repo rate is 50 basis points and is the second rise in interest rates this year, following a 25 basis points increase by the SARB’s Monetary Policy Committee at the end of January. With the repo rate now standing at 7.75% from 7,25%, the current prime lending rate shifts from 10,75% to 11,25%, its highest level since 2009.
Assuming an entry-level vehicle costs R250 000, financed over 72 months at an interest rate of 10,75% (prime), the instalment amount before the announcement would be R 4 818,40 (including admin and finance initiation fees). The vehicle at the hiked interest rate of 11,25% will result in a monthly repayment of R 4 882,73.
“An interest rate hike has a ripple effect across all sectors of the economy. Our customers are not unaffected by this higher cost of borrowing either,” says Lebogang Gaoaketse, Head of Marketing and Communication at WesBank. “Those customers whose vehicles are financed through WesBank with a fixed interest rate are unaffected by the rate hike. However, those customers who opted for a linked rate will see their monthly car repayment increasing.”
The interest rate affects the amount a bank or finance house charges you for borrowing money. The amount you owe is determined by the interest rate on your finance agreement and, despite the latest increase, is still relatively low for anyone repaying a vehicle finance loan. When buying a vehicle, new or used, customers have the option to choose between a fixed or linked (variable) interest rate for their vehicle finance agreement.
As it stands, a fixed interest rate will not change for the duration of your payment period. This can work in your favour, especially if the interest rate is volatile as is currently the case in South Africa, and you want the security of a constant fixed monthly repayment. If the rate drops. you will continue to be charged the agreed higher fixed interest rate.
A linked interest rate is linked to the prime lending rate and fluctuates with the SARB’s repo interest rate. If the rate increases, as it has today, so will your payment. However, if it is lowered, you will benefit from a lower monthly repayment and some extra money in your account. Linked interest rates are usually slightly lower than fixed.
“It is also important to remember vehicle ownership is more than the initial price tag. You also need to consider the monthly repayments plus the added costs of fuel, comprehensive insurance cover, and general maintenance and service expenses. And, of course, the interest rate hikes that continue to directly impact consumers’ monthly budgets,” adds Gaoaketse.
