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Over the last few months, the prime interest rate has risen from 13% to 16% where it currently lies and further rises are still possible.
"There is no definite trend", comments Peter Mageza, managing executive for ABSA's Vehicle and Asset Finance Division, 'but we monitor the situation closely, and have two recommendations to offer currently".
The impact of rate hikes for an average consumer is that based on a R100 000 vehicle, financed over 60 months with no deposit or residual value, for every 2% rise in interest, your monthly instalment will rise by approximately R100 per month.
This is an extra R6 000 over the full term of your contract.
Fixed rates
With this in mind, the option to fix one's interest rate is currently being offered as an alternative by 1331576, the specialist vehicle finance division of ABSA Bank.
A unique feature of ABSA's Vehicle and Asset Finance Division's fixed interest rate option is that when a customer requests a fixed interest rate, the bank makes an individual assessment at that point and a rate is worked out based on the latest market conditions.
The result of this, which is very beneficial to customers, is that the premium for fixing the rate is not just an average, but an exact calculation, and not always that much higher than the linked rate option.
As an example, should a customer receiving an interest rate of 15% be quoted a fixed rate option of 18%, this may create a substantial saving should the prime rate rise above the 18% mark.
It obviously also gives you total piece of mind that your payment will remain the same over the full term, and this helps with budgeting.
The downside is that should rates reduce, you do not have the benefit of any monthly payment reductions.
Residual Values
If you receive a car allowance and the price (monthly repayment) of your dream vehicle is slightly higher than you can afford, why not consider a small residual value, asks ABSA's Vehicle and Asset Finance Division.
This is a percentage of the initial price of the vehicle, which is parked at the end of your contract.
On a R100 000 vehicle, at 15% interest the normal repayment is R2 350 per month.
Should you add a 30% residual value, your payment reduces to R2 015 per month.
That's a saving of R335 per month or R20 000 over 60 months.
But remember, you will still owe that R30 000 at the end of your 5-year term.
This may be settled from the sale of the vehicle or re-financed over a shorter period.
