While the headlining interest rate in South Africa is set at 11.75%, you’re far more likely to get a rate of around 15.40% if you open up a new vehicle finance contract today.
DebtBusters’ latest Debt Index for Q1 2024 notes that since the Reserve Bank initiated its rate hike cycle in late 2022, the impact of successive increases resulted in higher average interest rates for new credit applicants.
The general consensus in the Debt Index is that South Africans are currently drowning in debt.
In the last eight years, the average take-home pay in the country decreased by 1% while inflation soared by 48%. This means that, in real terms, most South Africans had 49% less disposable income in 2024 compared to 2016 due mainly to the impact of high inflation.
As a result, the minimum debt-to-income ratio for consumers in 2024 sits at 78% and the maximum at 172%, compared to 56% and 140%, respectively, in 2016.
The average citizen now spends around 62% of their take-home pay to service debt. High-income earners, which are described as people taking home over R35,000 a month, forgo as much as 69% of their salaries on paying back loans.
“This is predominantly due to bond and vehicle finance debt,” said Benay Sager, Executive Head of DebtBusters.
At present, outstanding car loans account for approximately 23% of consumers’ overall debt, compared to 26% for home loans.
VAF = Vehicle Asset Finance Agreements. Source: DebtBusters
11.75% vs 15.40%
In the first quarter of 2024, the value of the average new vehicle finance contract in South Africa was R391,000, as per TransUnion’s Vehicle Pricing Index.
A higher interest rate translates into more substantial ownership costs as it not only affects the value of the monthly finance instalment, but also the total interest fees you will pay.
To see the real impact the elevated repayment rates had on the average buyer in Q1 2024, we compared the monthly instalments for a new vehicle financed over a 72-month period with no deposit or balloon payment:
| Interest rate | Car price | Monthly instalment | Total vehicle finance required | Total interest & service fees |
|---|---|---|---|---|
| 11.75% | R391,000 | R7,686 | R392,208 | R161,173 |
| 15.40% | R391,000 | R8,448 | R392,208 | R216,025 |
This shows that the higher lending rate requires the average South African car buyer to spend R762 more per month on their vehicle repayment, and a massive R54,852 more over the entire finance contract than if they were to snatch a deal at the prime rate of 11.75%.
Relief is only expected towards the end of 2024, as Nedbank estimates that the headlining interest rate will be cut by 0.5 basis points over the next five months to 11.25%.
For car owners who chose a linked interest rate when they financed their wheels, this should shave a few welcome rands from their monthly dues.
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