Motorists financing their cars stand to pay anywhere from R25 to R495 less on their monthly instalment by the end of 2024 if an expected reduction in interest rates comes to fruition.
The current lending rate in South Africa has been pegged at 11.75% since 31 March 2023, the highest levels seen since as far back as 2009, in an effort to contain inflation.
This has contributed to severe pressure on household spending, forcing consumers to downgrade their vehicles, downsize to one-car households, or stay out of the market completely.
However, things are expected to make a turn for the better towards the latter half of the year.
In Nedbank’s latest Monetary Policy Committee (MPC) meeting preview, the financial institution said it anticipates that the South African Reserve Bank (SARB) will start a modest rate-cutting cycle before the end of 2024, with interest rates potentially falling by as much as 0.5 basis points (bp) over the span of two adjustments.
Previously, Nedank predicted a 0.75bp cut, however, it has revised this down to 0.5bp due to unpredictable macroeconomic pressures.
Projections indicate that inflation – currently at 5.2% – will commence a slow downward trend during the remainder of 2024, but won’t reach the SARB’s target figures of 4.5% until Q2 2025.
“The disinflation process will remain relatively slow. The stickiness will stem from the lower statistical base, still high domestic cost structures and inefficiencies, and a moderate pickup in food inflation later this year,” said Nedbank.
However, consistent downward pressure will be provided by global disinflation, subdued domestic demand, and a firmer rand.
With this in mind, Nedbank believes that conditions will be more supportive of monetary policy easing towards the end of Q3 2024.
“Consequently, we still expect the first 25bps cut in September, followed by another of the same margin in November,” said Nedbank.
“The repo rate is forecast to end the year at 7.75%, taking the prime lending rate to 11.25%.”
Relief incoming
The table below shows how much less you might be paying at the end of 2024 on your monthly car finance contract if interest rates drop to 11.25%.
The deal structure is based on a 72-month finance contract with no deposit or balloon payment.
| Car price | Monthly instalment at 11.75% | Monthly instalment at 11.25% | Difference |
|---|---|---|---|
| R100,000 | R2,015.43 | R1,990.36 | -R25.07 |
| R200,000 | R3,938.65 | R3,888.80 | -R49.85 |
| R300,000 | R5,861.86 | R5,787.24 | -R74.62 |
| R400,000 | R7,785.07 | R7,685.68 | -R99.39 |
| R500,000 | R9,708.28 | R9,584.12 | -R124.16 |
| R600,000 | R11,631.49 | R11,482.56 | -R148.93 |
| R700,000 | R13,554.70 | R13,381.00 | -R173.70 |
| R800,000 | R15,477.92 | R15,279.44 | -R198.48 |
| R900,000 | R17,401.13 | R17,177.88 | -R223.25 |
| R1.0 million | R19,321.34 | R19,076.32 | -R245.02 |
| R1.1 million | R21,247.55 | R20,974.76 | -R272.79 |
| R1.2 million | R23,170.76 | R22,873.20 | -R297.56 |
| R1.3 million | R25,093.97 | R24,771.64 | -R322.33 |
| R1.4 million | R27,017.18 | R26,670.07 | -R347.11 |
| R1.5 million | R28,940.40 | R28,568.51 | -R371.89 |
| R1.6 million | R30,863.61 | R30,466.95 | -R396.66 |
| R1.7 million | R32,786.82 | R32,365.39 | -R421.43 |
| R1.8 million | R34,710.03 | R34,263.83 | -R446.20 |
| R1.9 million | R36,633.24 | R36,162.27 | -R470.97 |
| R2.0 million | R38,556.45 | R38,060.71 | -R495.74 |
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