Consumers who are already battling to service their debt will be hard hit by Thursday's announcement by the SA Reserve Bank's monetary policy committee (MPC) to increase the repo rate from 6.50% to 6.75% — the first increase in two years.
The 25 basis-points increase, which is effective from Friday, means the prime lending rate is now 10.25%. While credit providers charge interest based on the client’s individual risk profile, the interest charged on most credit agreements is determined by the repo rate.
As an example of the impact of the increase, repayments on a home loan of R2m will go up by R332 a month, from R19,300 to R 19,632, assuming the borrower is paying interest at the prime rate.
Repayments on vehicle finance for R350,000 over 60 months will increase from R8,424 to R8,470 — assuming the consumer was paying interest at 15% and 15.25%, respectively. The maximum that a credit provider can charge in interest on vehicle finance is 27.25%.
A credit card repayment on a R10,000 debt would go from R931.14 a month to R942.79 at an interest rate of 20% and 20.25%, respectively. The maximum interest that you can be charged on your credit card is now 24.25%.
Since credit providers charge interest based on your risk profile, you will need to work out how the interest-rate increase will impact you. The following table shows the formula used to calculate the maximum interest that you can be charged for credit that is linked to the repo rate...