South Africans are taking on bigger loans than ever to buy new cars – The numbers

Motorists are increasingly resorting to substantial vehicle finance loans in order to purchase new cars in South Africa.

The latest vehicle pricing index from TransUnion shows that the average South African is now taking out car loans in excess of R390,000 as a result of persistent macro-economic challenges.

Rising costs and debts

New-car prices in South Africa rose by 4.7% in the first quarter of 2024, showing an appreciable drop compared to the inflation rate of 6.3% seen in the same period last year.

Things were even more positive for used-car prices, which saw an average increase of just 2.1% this year versus 8.1% in Q1 2023 , indicating that the pre-owned market is beginning to stabilize.

“The significant slowdown in used-vehicle price inflation, combined with relatively lower new vehicle price increases and manufacturer incentives, is making new vehicles increasingly attractive to buyers entering the market,” said TransUnion.

New-vehicle price increases are currently below the consumer price index (CPI), which is sitting at 5.3% as of Q1 2024 – down from 7.0% during the same period last year.

However, while the rate at which vehicle stickers are going up did slow down in Q1 2024, the purchasing cost of the models themselves is the highest it has been on record, which is reflected in the fact that South Africans are taking on bigger loans than ever to pick up a new set of wheels.

The average loan value for financed vehicles rose from R387,000 to R391,000 between the first three months of 2023 and 2024, respectively.

This is the highest rate ever recorded by TransUnion since it started tracking this data all the way back in 2011, though it is still below the current CPI.

“This indicates while nominal loan amounts have grown, they’re not keeping pace with rising vehicle costs, reflecting diminishing disposable income or spending power among consumers,” said the company.

This trend suggests that local motorists are becoming more cautious with their spending, which is unlikely to change unless there is a significant increase in disposable incomes or a decrease in vehicle prices, said TransUnion.

Only 18% of finance arrangements made so far in 2024 were for less than R200,000 – a decline of 2% from the year prior.

It’s a similar story with loans between R200,000 and R300,000 which decreased from 28% to 27%, allowing the over-R300,000 bracket to grow to 55%.

Consumer and business confidence remains at an all-time low in South Africa, leading many to defer long-term financial commitments such as car purchases.

The majority of consumers who bought a vehicle post-2021 have not yet reached the point at which their loan balances can be offset by the trade-in value of their model, and this is expected to suppress sales until greater economic stability is established.

Adding to this, many households are downsizing to just one rather than two vehicles, and substituting much of their transport requirements with an increased reliance on popular e-hailing apps like Bolt and Uber.