Bad news for anyone applying for a car loan in South Africa

The South African Reserve Bank (SARB) has increased interest rates, which the National Automobile Dealers’ Association (NADA) said will add further strain on already struggling household budgets.

During its latest meeting, the Monetary Policy Committee (MPC) increased the policy rate by 25 basis points to 7.25%, with the prime lending rate moving to 10.75%.

In July, headline consumer inflation rose to 4.3%, before edging up to 4.4% in August, adding more pressure on an affordability environment already plagued by higher fuel and household costs.

“While we understand the inflationary pressures behind the decision, another increase in borrowing costs is difficult news for consumers, particularly when affordability is already influencing vehicle purchasing decisions,” said NADA Chairperson Brandon Cohen.

The Competition Commission’s latest Cost of Living Report outlines how petrol prices increased by 26% between January and July 2026, while electricity prices have also risen ahead of inflation.

“Consumers are not dealing with higher interest rates in isolation. Vehicle finance, fuel, insurance, vehicle licensing fees, electricity, food and other essentials all compete for the same disposable income,” added Cohen.

“It is the cumulative impact that ultimately determines what households can afford.”

According to the Chairperson, this pressure is already affecting local buyer behaviour, with TransUnion data showing a decline in vehicle purchase intent.

Despite this hesitance, new-vehicle sales improved 11.4% year on year in August, recording 57,898 sales.

“That contrast is important. Consumers still need vehicles, but they are becoming much more deliberate about what they buy and how they finance it,” explained Cohen.

“We expect an even greater focus on value for money, fuel efficiency, quality pre-owned vehicles and the total cost of ownership.”

He added that the full effect of the latest rate increase on vehicle purchasing behaviour is likely to become clearer over the next 60 to 90 days, as consumers reassess household budgets and finance commitments.

“Dealers are seeing these shifts first-hand and are well placed to help customers find vehicles and finance structures that meet their mobility needs while remaining sustainable within household budgets,” he concluded.

South Africa’s cheapest cars are already unaffordable

According to the Cars.co.za 2026 South African Automotive Industry Report, a new hatchback selling for R294,000 – the price of a new VW Polo Vivo or Suzuki Baleno – now costs over R11,700 per month to own.

This includes the monthly repayment, as well as all additional vehicle ownership costs, like insurance, fuel, and maintenance.

“Finance repayments account for less than half of this total, highlighting the growing influence of fuel, insurance and maintenance costs in the ownership equation,” it found.

“Fuel, insurance and maintenance now make up a significant share of monthly ownership costs, illustrating how vehicle affordability extends well beyond the purchase price.”

Fuel price volatility is also reshaping vehicle and fuel-type choice among local buyers, with diesel demand falling sharply between March and May 2026.

This coincided with diesel price spikes linked to the Iran conflict, while demand for efficient petrol vehicles grew faster than expected over the same period.

Buyers are not only shifting to cheaper-to-run vehicles, but also extending their loan terms to lower monthly instalments.

According to the report, many are stretching their loans to 84-month deals, adding more than R55,000 in interest compared to a standard 60-month term, when financing a car priced around R300,000.

This will only get worse once the prime lending rate moves to 10.75%, as a 5-year, or 60-month, loan will add over R87,300 in interest.

Those opting for longer loan terms will feel the pinch even more, as 6-year, or 72-month, loans on an affordable hatch will add over R100,000 in interest, while an 84-month loan will make that more than R125,000.