R10,000 blow to car owners in South Africa

 ·11 Jun 2024

It’s been a whole year since the South African Reserve Bank (SARB) hiked interest rates to 15-year highs, and this has cost the average car owner an estimated R832 per month or R10,008 over the past year in interest on their car repayments.

The South African Reserve Bank’s (SARB’s) Monetary Policy Committee voted in May 2024 to hold rates. This means that the repo rate remains at 8.25% and the prime lending rate at 11.75%.

The decision was unanimous, and since the beginning of the rate hike cycle in November 2021, rates have been raised by 475 basis points to their highest levels in 15 years.

Interest rates have been kept at this level following the last policy rate decision a year ago, which is putting financial pressure on households that are also dealing with other increased expenses such as electricity, fuel, and bond repayments.

According to TransUnion’s Vehicle Price Index for Q4 2021, the average value of a financed vehicle is around R360,000, which is around the same time as the start of the interest rate hike cycle.

WesBank also noted that the average new vehicle financed through WesBank was roughly R358,390 at the time.

This means those who bought a car at this value at the start of the hike cycle at 7% (prime September 2021) have been paying an extra R834 per month on their car loan at 11.75% (prime since May 2023).

Assuming a payment term of 60 months (five years) and a 0% deposit, this works out to an extra R10,008 over the past year (May 2023 to May 2024).

However, this increases with the price of the vehicle, as those who bought an R500,000 car pay R1,161 extra per month, while the few who purchased a R1 million car pay a notable R2,320 extra per month.

These work out to an extra R13,932 and R27,840, respectively, since May 2023.

The table below highlights the extra cost of financing a car at the current interest rate compared to September 2021, before the rate hike cycle started, and its accumulation over the past year.

Value of the carSept 2021 (7%)May 2024 (11.75%)ChangeSince May 2023
R175 000R3 558R3 966+R408+R4 896
R200 000R4 053R4 519+R466+R5 592
R225 000R4 548R5 072+R524+R6 288
R250 000R5 043R5 625+R582+R6 984
R275 000R5 538R6 178+R640+R7 680
R300 000R6 033R6 731+R698+R8 376
R325 000R6 528R7 284+R756+R9 072
R350 000R7 023R7 837+R814+R9 768
R359 000R7 202R8 036+R834+R10 008
R375 000R7 518R8 390+R872+R10 464
R400 000R8 013R8 943+R930+R11 160
R450 000R9 003R10 049+R1 046+R12 552
R500 000R9 994R11 155+R1 161+R13 932
R550 000R10 984R12 261+R1 277+R15 324
R600 000R11 974R13 367+R1 393+R16 716
R650 000R12 964R14 473+R1 509+R18 108
R700 000R13 954R15 579+R1 625+R19 500
R750 000R14 944R16 684+R1 740+R20 880
R800 000R15 934R17 790+R1 856+R22 272
R850 000R16 924R18 896+R1 972+R23 664
R900 000R17 914R20 002+R2 088+R25 056
R950 000R18 904R21 108+R2 204+R26 448
R1 000 000R19 894R22 214+R2 320+R27 840

WesBank noted that household budgets remain under tremendous pressure, and those who have had car and home loans since the start of the rate hiking cycle, post-Covid-19, are really feeling the effects.

What’s worse, the costs over the period are compounded when you consider that the total cost of vehicle ownership is more than the initial price tag of the vehicle.

These additional expenses include the added costs of fuel, comprehensive insurance coverage, and general maintenance and service expenses, all of which have increased over the past year.

For example, the cost of unleaded petrol 95 in May 2024 was R25.49 per litre, a difference of R2.64 from the R22.95 in May 2023.

This likely added thousands more to the car’s cost. Despite this, petrol recently came down by R1.24 in June 2024, and there is likely more joy to come in July.

The financial strain on consumers in the vehicle market is also evident in the monthly new vehicle sales reports.

According to Naamsa, vehicle sales have seen eight consecutive months of declining sales across South Africa.

Passenger car volumes were down 6.4% for the first five months of 2024 compared to a year ago. This has been blamed on the high cost of living in the country, which includes high interest rates.

“Economic conditions remain tough for consumers within pressurised household budgets,” said Head of Marketing and Communication at WesBank, Lebo Gaoaketse.

“However, although the rate remains high, some analyst outlooks indicate that inflation has peaked, which could indicate lower rates during the second half of the year.”

Lebo said other positive outlooks for the second half could be spearheaded by the expected significant reduction in fuel prices during June.

With a known outlook for the country’s political landscape, more stability can be expected in general market activity, which should be mirrored by new vehicle sales.

He added that improved sentiment will also be helped should load shedding continue at low levels, allowing an overall boost in economic activity.

Read: The 10 cars least likely to be hijacked in South Africa

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