How much more you’re paying for your car after March’s interest rate hikes

The South African Reserve Bank (SARB) in March hiked the country’s prime interest rate for the ninth consecutive time by 50 basis points (bp), from 10.75% to 11.25%, adding strain to already cash-strapped consumers.

If your car finance agreement is on a linked interest rate, depending on the structure, this latest increase could add anywhere from R25 to R499 to the monthly repayment.

“A linked interest rate is linked to the prime lending rate and fluctuates with the SARB’s repo interest rate,” said Lebogang Gaoaketse, head of marketing and communication at WesBank.

Linked interest rates can seem attractive when entering into the initial contract as they are generally lower than fixed rates, the latter of which stays constant for the entire duration of the finance agreement.

However, the linked option has one main caveat.

With a linked contract, if the prime lending rate jumps, so, too, does the monthly amount the vehicle owner has to pay. Similarly, if the rate drops, the motorist will benefit from a lower monthly repayment.

With South Africa’s rising interest rates showing no sign of slowing down, it could lead to buyers postponing vehicle purchases, trading down, or even exiting the new-car market altogether, said Gaoaketse, none of which bodes well for the strength of the local economy.

What a 50bp interest rate hike looks like on your car payment

The table below indicates how the latest 50bp interest rate hike will reflect on your monthly car payment in March.

The vehicle finance contract was taken over a five-year period with no deposit put down.