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2016-01-28 16:27

RATE HIKE IN SA: The recent rate hike will affect car owners who have vehicle finance agreements structured around a linked interest rate, reports WesBank. Image: iStock

Johannesburg - 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 installments. 

Increased monthly installments

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 installment.

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 175 (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 installment only changes by 20 or 30 rand, 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."

Here's how the interest rate could affect you: By WesBank

Using an example of a vehicle that costs R250 000, financed over 72 months at an interest rate of prime plus 1.5%, the installment amount at the start of January 2014 would have been R4710 (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 R4935 – a difference of R223.

How will this affect the SA vehicle industry?

WesBank says: "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." 

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