Interest rate hike: car owners to pay more

PHOTO: sourced If you’re paying off a car you could be in for increased monthly instalments.
PHOTO: sourced If you’re paying off a car you could be in for increased monthly instalments.

THE South African Reserve Bank (Sarb) governor Lesetja Kganyago has announced a repo rate increase of 50 basis points to 6.75%.

The announcement means the prime lending rate is now 10.25%.

How will this affect vehicle owners? If you’re paying off a car you could be in for increased monthly instalments.

Finance specialists WesBank says the rate hike will affect buyers who have vehicle finance agreements structured around a linked interest rate. Interest on these loans will be recalculated, and account holders will be notified of the increase in their monthly instalment.

Rudolf Mahoney, head of brand and communication at WesBank, said: “Given the current economic conditions this hike comes as no surprise. But it will not be welcomed by consumers. Household budgets are under tremendous pressure. The interest rate has increased 225 (2.25%) basis points in 24 months, meaning those who have had car and home loans since the start of the rate hiking cycle will now really start feeling the effects.

‘’Every time there’s a 25 basis points hike a vehicle’s monthly instalment only changes by R20 or R30, but all those small hikes add up. This is an excellent example of why we urge consumers to build some fat into their car-buying budgets.”

Wesbank says a vehicle that costs R250 000, financed over 72 months at an interest rate of prime plus 1.5%, the instalment amount at the start of January 2014 would have been R4 710 (at an effective interest rate of 10%, including all charges). Purchasing that same vehicle based on the new hiked interest rate would result in a monthly repayment of R5 000 – a difference of R290.

“Rising interest rates and inflation, brought on by a deteriorating rand and compounded by the fallout of the national drought, will see buyers either postpone vehicle purchases, buy down or exit the new market altogether in order to find better value the used market,” says Wesbank. - Wheels24.

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