29 January 2016 – WesBank has noted the Reserve Bank’s decision to hike the interest by 50 basis points, bringing the effective repo rate to 6.75%. The prime lending rate will now change to 10.25%.
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.
“Given the current economic conditions this hike comes as no surprise. But it will not be welcomed by consumers,” says Rudolf Mahoney, Head of Brand and Communication at WesBank. “Household budgets are under tremendous pressure. The interest rate has increased 175 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.”
Using an example of 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 at today’s hiked interest rate would result in a monthly repayment of R4 935 – a difference of R225.
“Every time there’s a 25bps hike a vehicle’s monthly instalment only changes by 20 or 30 rand, but all those small hikes add up,” says Mahoney. “This is an excellent example of why we urge consumers to build some fat into their car-buying budgets.”
Consumers with additional debt will notice the increased repayments starting to significantly affect their budgets. Household debt levels in South Africa remain at high levels – with more than 75% of disposable income servicing debt. 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.