The maximum interest rate on a new vehicle finance contract in South Africa is the national repo rate plus 17%, according to the National Credit Act.
As of the latest rate cut on 21 November 2024, this amounts to a substantial interest rate of 24.75%.
As per finance house WesBank, interest is the cost of buying on credit, which in itself is similar to borrowing money.
“Whenever you pay a person or company back with more than you originally borrowed from them, you are paying some form of interest,” said the company.
“In formal credit (such as vehicle finance), interest is normally charged over time, as a percentage of the amount owing. This is known as the interest rate. The longer you have an outstanding balance with your finance provider, the more interest you’ll end up paying.”
The interest is factored into your monthly repayments so that by the end of your payment term, you’ve paid the total cost of credit.
The good news is that it’s very unlikely that you’ll be charged this exorbitant lending rate of 24.75%.
This will only happen if you have a very poor credit score and if the lending agency doesn’t have your best interests in mind. Think loan shark more than loan provider.
With an average credit rating at a respectable finance institution, you’re more likely to receive an interest rate between prime – which as of the time of writing is 11.25% – and 15.30%
11.25% vs 15.30% vs 24.75%
A higher interest rate translates into higher vehicle ownership costs as it not only affects the value of the monthly finance instalment, but also the total sum you will pay over the course of the contract.
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 11.25% | Monthly instalment at 15.30% | Monthly instalment at 24.75% |
|---|---|---|---|
| R100,000 | R2,008 | R2,226 | R2,780 |
| R200,000 | R3,925 | R4,356 | R5,458 |
| R300,000 | R5,841 | R6,487 | R8,137 |
| R400,000 | R7,757 | R8,618 | R10,815 |
| R500,000 | R9,673 | R10,749 | R13,493 |
| R600,000 | R11,590 | R12,880 | R16,172 |
| R700,000 | R13,506 | R15,011 | R18,850 |
| R800,000 | R15,422 | R17,141 | R21,529 |
| R900,000 | R17,338 | R19,272 | R24,207 |
| R1 million | R19,255 | R21,403 | R26,885 |
As this shows, a higher interest rate significantly affects the amount you’ll have to pay back to the bank at the end of every 30-odd days.
This adds up to a substantial expenditure 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 11.25% | Total interest & service fees at 15.30% | Total interest & service fees at 24.75% |
|---|---|---|---|
| R100,000 | R43,395 | R59,033 | R98,934 |
| R200,000 | R 81,365 | R112,452 | R191,778 |
| R300,000 | R119,334 | R165,872 | R284,623 |
| R400,000 | R157,303 | R219,291 | R377,468 |
| R500,000 | R195,272 | R272,711 | R470,312 |
| R600,000 | R233,241 | R326,130 | R563,157 |
| R700,000 | R271,210 | R379,550 | R656,001 |
| R800,000 | R309,179 | R432,970 | R748,846 |
| R900,000 | R347,148 | R486,389 | R841,691 |
| R1 million | R385,117 | R539,809 | R934,535 |
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