Vehicle Interest Rates - Will You Fix Or Link?
If it's not the rising fuel prices, its food and electricity prices are competing for the top spot. If you’re in the market to buy a new vehicle, the rising interest rates are something to pay close attention to. Think about it, it's your vehicle interest rates and vehicle finance loan as a whole?
Understanding Vehicle Interest Rates
For those in the market for a vehicle, a vehicle loan is an amount given to you by the bank to pay over a stipulated period. During this, an interest rate is included. It’s called the prime interest rate. As any car finance provider will tell you, it is the basic rate that local banks use when charging their clients for the vehicle loan. The prime rate is linked to the repo rate - the interest rate from which banks borrow money from the Reserve Bank. So, when the repo rate goes up or down, the interest rate fluctuates accordingly.
Now that you’ve found your dream car, the bank has approved your vehicle loan and it's time to choose the interest rate you will be taking, will you take a linked or a fixed one?
Linked Interest Rate
A linked rate is linked to the prime lending rate of South Africa. Simply put, it means that when the interest rate increases, so will your monthly instalments. And when it decreases, your monthly instalments will too.
Fixed Interest Rate
However, if your lending rate is fixed, it will not change for the duration of the loan. Your monthly instalments will stay the same.
South Africa's Interest Rate
South Africa’s interest rate is currently at 7.5%, however, some finance deals will have higher or lower interest rates depending on an individual’s credit profile. Let’s look at the current lending rates, both linked and fixed on two vehicles and what you’re likely to pay.
Take two of the most affordable vehicles in South Africa, the Renault Kwid on a linked interest rate while the Suzuki S-Presso on a fixed interest rate.
The Renault Kwid 1.0l Expression retailing at R170 400 at a six-year loan period. The linked interest rate is at 9.75% with the balloon payment incurred at 35% with no deposit. The total repayment amount is R242 864.
While the Suzuki S-Presso retails at R152 900 at a five year loan period. The fixed interest rate is at 10.66% with no deposit and a balloon payment of R53 515. The total repayment amount is R228 567.
However, if the Suzuki S-Presso was at a linked rate of 7.5% (current South African rate) with a 10% or R15 290 deposit, a balloon payment of the same amount, the total repayment would be R188 313.
A potential buyer would save R40 254 from having their interest rate linked. The best way to know what will work for you and your pocket is to seek the advice of a financial service provider. With Auto Pedigree's wide range of vehicles to choose from their in-house financial services make vehicle purchasing simple.
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