R308 per month relief for car owners in South Africa is coming

 ·21 Jul 2024

The South African Reserve Bank (SARB) is expected to cut interest rates by up to 150 basis points by mid-year 2025, which could result in the average car owner with vehicle asset finance saving R308 per month on their repayments.

The South African Reserve Bank’s (SARB’s) Monetary Policy Committee decided to keep rates unchanged in May, maintaining the repo rate at 8.25% and the prime lending rate at 11.75%.

Economists anticipate that the SARB will maintain the rates at 8.25% when the Monetary Policy Committee convenes in July.

They are hopeful that interest rate cuts will be postponed until the September meeting.

Investec chief economist Annabel Bishop, however, is more cautious about predicting a rate cut in September, instead suggesting a more moderate cut in November or possibly in January 2025.

 Looking ahead, the Bank of America (BofA) expects 25 basis point cuts to begin in January 2025, followed by cumulative cuts of 100 basis points in January, March, May, and July.

This projection is in line with momentum, which also foresees a 100 basis point cut by mid-2025.

Despite this, Investec predicts that the cutting cycle will conclude after a 150 basis point reduction, possibly around the middle of 2025 at the July meeting (with a repo rate of 6.75%).

Investec’s forecast is outlined below:

MeetingMoveRate
May 2024Hold8.25%
July 2024Hold8.25%
September 2024Hold8.25%
November 2024-25 bps8.00%
January 2025-50 bps7.50%
March 2025-25 bps7.25%
May 2025-25 bps7.00%
July 2025-25 bps6.75%
September 2025Hold6.75%

This maximum forecast of 150bps will bring much-needed relief for car owners with loans in South Africa, and it’s expected to commence as soon as November.

Interest rates have remained unchanged since the last policy rate decision a year ago, adding to the financial strain on households that have also faced other cost increases, such as electricity, fuel, and property rates.

According to WesBank, the average amount for a new vehicle financed through their institution was approximately R410,000. 

This means that individuals who purchased a car at this value and secured a loan at current rates will pay R270 less per month on their repayments at a forecasted prime rate of 10.25% by July 2025. 

However, this saving diminishes as the price of the car increases.

For instance, those who bought an R500,000 car will pay R375 less per month, while those who purchased a R1 million car will enjoy a more substantial reduction of R750 per month.

The table below highlights how much you’ll save on your bond every month if the forecasted 150 bps interest rate cuts come into effect next year.

Value of the carCurrent rate (11.75%)Expected by July 2025 (10.25%)Change
R175 000R3 966R3 835-R131
R200 000R4 519R4 369-R150
R225 000R5 072R4,903-R169
R250 000R5 625R5,437-R188
R275 000R6 178R5,971-R207
R300 000R6 731R6,506-R225
R325 000R7 284R7,040-R244
R350 000R7 837R7,574-R263
R375 000R8 390R8,108-R282
R400 000R8 943R8,643-R300
R410 000R9 164R8 856-R308
R450 000R10 049R9,711-R338
R500 000R11 155R10,780-R375
R550 000R12 261R11,848-R413
R600 000R13 367R12,917-R450
R650 000R14 473R13,985-R488
R700 000R15 579R15,054-R525
R750 000R16 684R16,122-R562
R800 000R17 790R17,191-R599
R850 000R18 896R18,259-R637
R900 000R20 002R19,328-R674
R950 000R21 108R20,396-R712
R1 000 000R22 214R21 465-R749

Several auto motor stakeholders have noted that decisions to hold interest rates are disappointing and that the new vehicle market needs a rate cut.

Year-to-date, new vehicle sales have declined 7.4% to 246,052 units, leaving the possibility that the market will fail to reach 500,000 units this year.

“Vehicle price inflation, high interest rates, and the general rising costs of living are all impacting the ability of new car buyers to enter or stay in the market,” said Lebo Gaoaketse, Head of Marketing and Communication at WesBank.

“Until there is some relief in interest rates, greater incentive deals from manufacturers, or a significant shift in general inflation or earnings, the new vehicle market will continue to remain under pressure,” he added.

In the automotive industry, the impact of lower interest rates cannot be overstated.

This financial shift would encourage consumers to make significant purchases, ultimately driving up sales and providing crucial support to businesses throughout the supply chain.

The implications wouldn’t just stop at the property and car sales sectors. A noteworthy reduction in interest rates would have extensive positive ramifications for the broader economy.

The resulting surge in consumer spending would lead to a noticeable uptick in demand, thereby triggering heightened production levels, facilitating job creation, and fostering a more robust economic outlook.


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