How much more you’ll pay on credit cards, loans and your bond after today’s rate hike
- The Reserve Bank’s Monetary Policy Committee announced a big leap Increase of 75 basis points in interest rates on Thursday.
- South Africa has very high inflation rates, which the Reserve Bank is supposed to control.
- Rising interest rates will take money out of consumers’ pockets – at a rate of R1,670 per month for a R1 million home loan, compared to a year ago.
- Here’s how much higher rates on cars, credit card debt and personal loans will cost.
- For more stories, go to www.BusinessInsider.co.za.
The SA Reserve Bank’s Monetary Policy Committee raised interest rates by 75 basis points on Thursday, adding three-quarters of a percentage point to what nearly everyone is paying on their debt.
The sharp rate hike – the biggest increase in interest rates since 2002 – comes just after Statistics South Africa reported the highest consumer inflation rate South Africa has recorded in 13 years.
Private transport costs are up 37% from a year ago, and food prices are up more than 9%, StatsSA said.
See also | Inflation is skyrocketing – especially if you eat bread or drive a car
And inflation is not expected to slow down, Reserve Bank Governor Lesetja Kganyago said on Thursday.
To force prices down, the Reserve Bank is now taking money out of consumers’ pockets, through higher interest payments.
The prime interest rate is now at 9%, a level reached in 2020, before deep cuts were made to stimulate the economy – and keep businesses afloat – during the pandemic.
See also on Fin24 | Interest rates rose 75 basis points – the biggest rise since 2002
Here’s how much the interest rate hike will cost you in rand compared to a year ago, based on average house and car costs, average short-term borrowing, and typical or peak interest rates .
On a mortgage of 1 million rand: 1,670 rand per month
Medium sectional title houses sell for just under R1 million, and medium freehold houses sell for just over R1 million in South Africa.
Call it around R1 million in debt to buy a house, and it now costs an extra R1,670 per month compared to July 2021, if you pay the prevailing (or prime) rate.
First-time home buyers and those who have to stretch further to afford a home tend to pay above prime, while those in better financial shape may get rates below prime, so the impact of an increase in interest rates is mostly felt by the less-rich.
On a used car R375,000: R625 per month
South Africans paid around R375,000 for used cars in 2021, on average.
Interest rates on cars vary wildly, with significant financial subsidies from some premium brands on new vehicles – and a range of residual or balloon options that lower monthly payments while shifting costs to the end of the loan period.
But for a used car that will hold its value well, for a buyer with a decent level of free monthly cash relative to the car’s value, prime plus two percentage points isn’t bad.
For such a buyer, the same car loan is now R625 per month more expensive than a year ago.
On R50,000 of credit card and store debt: R80 per month
Between credit cards and store cards, South Africans have around R50,000 in unsecured debt, according to the National Credit Regulator.
Banks often offer personalized interest rates on credit card debt, while retailers with own-brand cards are more likely to charge fixed – and relatively high – interest rates.
At the highest permitted interest rate, set at the repo rate plus 14 percentage points, that average R50,000 of unsecured credit is now roughly R80 a month more expensive than it used to be. was in July 2021.
On a personal loan of R33,000: R55 per month
Credit bureau data shows that the average new personal loan in South Africa is around R33,000.
The maximum interest rate allowed for these loans is the repo rate plus 21 percentage points.
Based on these numbers, the cost of credit each month is up R55 from a year ago.