When checking if they can afford a vehicle on a car finance contract using one of the many available online calculators, many South African consumers use the prime interest rate to perform the calculation assuming this is the repayment terms they will be offered.
However, recent data from debt management firm DebtBusters indicates that you’re unlikely to get prime when financing a new ride. Odds are, it should be closer to 15%.
DebtBusters’ numbers show that South African consumers who applied for debt counselling over the past two quarters had an average vehicle asset finance (VAF) interest rate of 15.3%, well above the current prime rate of 11.50% and still higher than the 11.75% that was the norm from May 2023 to September 2024.
Even at the height of the Covid pandemic when interest rates were at their lowest in years, consumers saw an average VAF interest rate of 12%.
As a result, the share of vehicle debt in consumers’ overall debt portfolios has increased from 20% in 2016 to 24% in Q3 2024, indicating that car finance is occupying a larger portion than ever before in South Africans’ budgets.
This is most pronounced for middle-income earners, which are those receiving paycheques of between R10,000 and R35,000 a month. For these individuals, VAF accounts for 25% of their overall debt basket.
The VAF share for high-income consumers, those making over R35,000 a month, sits at 22%.
For people earning between R5,000 and R10,000 a month, VAF occupies 20% of their debt burden, and a lower 12% for those who make less than R5,000.
“Share of vehicle debt has increased in the last few years, indicating that more consumers with financed vehicles are seeking financial assistance,” said DebtBusters.
It’s therefore vitally important to ensure you can afford a new set of wheels at a higher interest rate before making a financially binding decision.
The average interest rate for VAF for consumers who entered debt counseling over the past eight years were:
Source: DebtBusters
11.50% vs 15.30%
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 over the entire course of the agreement.
Illustrating the real impact the elevated repayment rates have on the average motorist, we compared the monthly instalments for a new vehicle financed over a 72-month period with no deposit or balloon payment:
| Vehicle price | Monthly instalment at 11.50% | Monthly instalment at 15.30% | Difference |
|---|---|---|---|
| R100,000 | R2,021 | R2,226 | +R205 |
| R200,000 | R3,951 | R4,356 | +R405 |
| R300,000 | R5,880 | R6,487 | +R607 |
| R400,000 | R7,809 | R8,618 | +R809 |
| R500,000 | R9,738 | R10,749 | +R1,011 |
| R600,000 | R11,667 | R12,880 | +R1,213 |
| R700,000 | R13,596 | R15,011 | +R1,415 |
| R800,000 | R15,525 | R17,141 | +R1,616 |
| R900,000 | R17,454 | R19,272 | +R1,818 |
| R1 million | R19,383 | R21,403 | +R2,020 |
As this shows, a higher interest rate has a significant impact on the amount you’ll have to pay back to the bank at the end of every 30-odd days.
As such, you’ll be spending considerably more on total interest payments during your ownership experience.
The total interest and service fees for a new vehicle financed over a 72-month period with no deposit or balloon payment at different interest rates are compared below:
| Vehicle price | Total interest & service fees at 11.50% | Total interest & service fees at 15.30% | Difference |
|---|---|---|---|
| R100,000 | R44,334 | R59,033 | +R14,699 |
| R200,000 | R83,230 | R112,452 | +R29,222 |
| R300,000 | R122,127 | R165,872 | +R43,745 |
| R400,000 | R161,023 | R219,291 | +R58,268 |
| R500,000 | R199,919 | R272,711 | +R72,792 |
| R600,000 | R238,816 | R326,130 | +R87,314 |
| R700,000 | R277,712 | R379,550 | +R101,838 |
| R800,000 | R316,608 | R432,970 | +R116,362 |
| R900,000 | R355,505 | R486,389 | +R130,884 |
| R1 million | R394,401 | R539,809 | +R145,408 |
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