Over the last 3 years, we have seen the repurchase rate (repo rate) increase significantly. In 2020, the repo rate hit a record low of 3.50%, due to much needed Covid-19 relief. Evidently, the interest rate has increased by a further 3,75% since then. In January 2023, the South African Government announced another increase of 25 basis points or 0.25% increase which brings it up to the current rate of 7.25%. 

So what causes interest rates to increase? There are a number of reasons, however, the largest two contributing factors are; inflation and the demand and supply of credit. In order to avoid a total collapse of the economy, the South African government intervenes by increasing interest rates in order to curb inflation and reduce the demand for credit.

What Does This Mean For Consumers With Debt?

With the increase of the repo rate, South African consumers with debt may likely see their credit become more expensive. This may present repayment challenges on accounts with variable interest rates for battling consumers. With reference to Investopedia.com, “variable interest rates fluctuate with the market and are based on the benchmark market rate”. Variable interest rate accounts will largely be influenced by the current increase fluctuation of 0.25%. 

Vehicle And Asset Finance – How Much More Expensive Will These Be?

Well, as the repo rate increases, which is a current trend, your home loan will become more expensive. Often enough, this is not accounted for when you apply for a home loan. However, this can have a large impact on your overall affordability and monthly budget. The table below shows how much the repo rate has increased over the last three years on a bond of R1 000 000 and R2 500 000. For the larger bond, the monthly repayments has increased by over R5,000 per month. This is a significant increase.

Subsequently, the repo rate also has an influence on your vehicle finance. As it increases, so will your monthly repayment. The table below shows the increase in the repo rate on vehicle finance on R150 000 and R400 000. On the larger priced vehicle, the installment has increase by R700 per month.

How To Avoid Paying More When There Are Interest Rate Hikes? 

There are two methods you can use to avoid paying more when there are interest rate hikes. Option one, you are able to choose a fixed interest rate over a variable interest rate when applying for finance. Simply put, a fixed rate will remain unchanged on your home loan or vehicle finance during the entire period. However, one downside of the fixed interest rate is that it will generally be higher than the variable rate due to the reduced risk.

If you are struggling to stick to your repayments each month, debt counselling can reduce monthly installments and interest rates. This allows for all of your accounts to be consolidated into one installment so you only pay one, affordable monthly payment. Additionally, you are able to include your vehicle and home loans into the process as well as any other accounts that you may be struggling with. 

How Does Debt Counselling Hedge Against Interest Rate Hikes?

As a registered debt counsellor with the National Credit Regulator (NCR) we are able to negotiate a lower instalment and interest rates with your credit providers. With our affordable repayment plans, we are able to fix your interest rates for up to 5 years. This can provide financial relief, stability and protection for yourself and your family. The reduction of your monthly installments and interest rates will allow you to afford all of your debt and ensure stability within your budget.

At Vantage Debt Management, we empower South Africans to imagine and achieve a better tomorrow by providing effective debt solutions to those who are experiencing debt problems. Contact us today for a free financial assessment and to find out how we can save you money on your home and vehicle.