How the latest rate hike affects your car premiums

Rising interest rates and inflation, brought on by a deteriorating rand, a tough economy and other global factors, could see buyers postponing new vehicle purchases, buying down or even exiting the new market altogether in favour of better value in the used car market, says WesBank.

This week's repo rate hike of 50 basis points is the second rise in interest rates this year, after a 25 basis points hike in January. With the repo rate now 7.75%, the prime lending rate shifts from 10.75% to 11.25%, its highest level since 2009.

Interest rates have been rising steadily since July 2020 when the prime lending rate was 7%.

This increase directly affects people paying off vehicle finance loans coupled to the interest rate, as the monthly repayment will increase. It doesn't affect customers who have opted for a fixed interest rate, which does not change for the duration of the payment period.

A fixed interest finance deal 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. Conversely, when the rate drops you will continue to be charged the agreed higher fixed interest rate.

“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,” comments Lebogang Gaoaketse, head of marketing and communication at WesBank. 

The latest interest rate hike means an increase of around R26 for every R100,000 of a financed vehicle's value, on a 72-month linked interest plan.

Assuming a vehicle costs R250,000, financed over 72 months at an interest rate of 10.75% (prime), the instalment amount before the announcement would be R4,818 (including admin and finance initiation fees). Purchasing that same vehicle at the hiked interest rate of 11.25% will result in a monthly repayment of R4,882.

The instalment on a R500,000 vehicle will increase from R9,544 to R9,673, a R129 difference. 

You can work out what your monthly repayment will be using the WesBank calculator to adjust your monthly budget with the new cost included in the expense column.

“It is also important to remember that vehicle ownership is more than the initial price tag. You also need to take into account the monthly repayments plus the added costs of fuel, insurance, and general maintenance and service expenses. And, of course. the interest rate hikes that continue to directly impact consumers’ monthly budgets,” comments Gaoaketse.

There isn't a one-size-fits-all solution to structuring a car finance deal, he says.

"Knowing how much you can realistically afford on the vehicle repayment, including interest rates and other increases, will stand you in good stead."

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