The interest rate on car finance in South Africa: Vehicle finance calculator
Owning a car has become a necessity in most South African homes, especially among families residing in urban areas. Seeking finance to purchase a vehicle, also known as car financing, has become the new norm globally. Before using this method, you should have a basic understanding of the interest rate on car finance in South Africa.
Source: UGC
Car financing is simply taking a car loan. Like any other loan, it comes with interest payable as part of the instalments. The interest rate on car finance varies from one company to another. It is always wise to go with the option with a lenient interest rate.
Interest rate on car finance in SA: what you should know
It is important to understand that the interest rate on car finance in SA varies depending on the financial institution. This means that the rate given by Standard Bank, for instance, may be different from that given by ABSA SA.
If you have been keen, you have observed that the interest rate on car finance in South Africa has been hiked in the last few months. Discover what constitutes a good interest rate on a vehicle loan below.
Average interest rate on car finance in South Africa
The prime lending rate for car loans has gone up in the last few months, bringing the average interest rate on car finance up to about 10.75%. This is partly caused by the global economic crunch post the COVID-19 pandemic.
The hike means that borrowing money has become far more expensive. If you opt for car finance, you should ensure your monthly payments are affordable.
You can ascertain affordability by analysing the cheaper option between fixed or variable interest rates. Kindly note that besides the terms and conditions of the lending institution, your car financing interest rate may be affected by the following factors.
- The down payment you make
- Your credit score
- Your income
- The length of the repayment period
- The vehicle type and model
Source: UGC
Variable interest rate on car financing
If you opt for a variable interest rate, your monthly car payment will increase or decrease based on the South African Reserve Bank’s (SARB) prime lending rate and repo rate index.
This means that if you pay R5,000 monthly for your new vehicle as per the contract, you will continue remitting that amount until SARB decides to raise or lower interest rates.
If the interest rate rises, you will pay more per month, and vice versa. Look at the pros and cons of this option below.
Pros
- Your monthly loan repayments decrease when interest rates decrease.
- Generally, lenders offer a lower variable rate than a fixed rate on a loan, according to their terms and conditions or lending policies.
- If interest rates reduce for the duration of the loan, you will pay less for your vehicle every month over the agreed loan term. If you continue paying what you were before the payment was reduced, you will pay off the loan faster and make savings.
Cons
- If the SARB prime and repo rates increase, you will pay more on your loan.
- Prevailing economic changes might cause several SARB interest rate hikes, leading to regular increases in your monthly repayment.
- If your original payment was the limit of what you can spend on your car monthly and the interest rate increases, you cannot afford higher instalments. This may mess up your finances.
Fixed interest rate on car financing
Another option South Africans have is a fixed interest rate on their vehicle loans. This means your financial commitment will stay the same for the full loan term, regardless of changes in the SARB prime interest or repo rates.
If you pay R5,000 monthly for your new vehicle as per the contract, you will continue remitting that amount until you complete your payments. Usually, fixed-interest loans are offered at a higher rate than those with variable interest rates.
Pros
- You are sure of what you are getting into from the beginning because you will remit the same monthly payment until you pay off the loan.
- A fixed interest rate allows you to budget your finances with confidence because the monthly payments do not change regardless of economic slumps.
- Changes in SARB prime interest or repo rates will not affect you in any way.
Cons
- There are no monthly cost savings in case the SARB prime interest or repo rates reduce.
- Fixed interest rates are usually higher than variable interest rates.
NB: If you wish to take a vehicle loan and are comfortable with a monthly instalment that shifts as the economy changes, a variable interest rate is best for you. If you would rather have a fixed payment plan, choose a fixed interest rate.
Source: UGC
What is the interest rate on car finance in South Africa?
There is no set interest rate on car finance in SA. Instead, the rate differs based on various factors, including the terms and conditions of the lending institution, your credit score, term length, and your down payment.
What is the average interest rate on car finance in SA?
The average interest rate is 10.75%. Beware that the rate may change from one lending institution to another.
What is the current interest rate on car finance in SA?
The current interest rate on car finance in South Africa depends on the financial institution, among other factors. Even so, the average is about 10.75%. You can always use an online vehicle finance calculator to help you analyse your options in a more realistic manner.
What is a good interest rate on car finance in SA?
A good rate is that which you can afford without straining other areas of your life, i.e., it is not financially restrictive. You can choose between a fixed and variable rate, depending on what you feel comfortable handling.
What are the requirements to qualify for vehicle finance?
The requirements for vehicle finance vary depending on the lending institution, but the basic requirements include those listed below.
- Must be a South African citizen aged 18 and above (some institutions may require the applicant to be at least 21 years)
- A driver's license
- Proof of residence (utility bills not older than three months are preferred)
- Proof of income over a specified period
Vehicle financing is an excellent option if you need a new set of wheels but lack enough cash. Before you run for this option, ensure you understand the prevailing interest rate on car finance to avoid messing up your financial life.
Briefly.co.za recently published how to get urgent loans for blacklisted direct lenders in South Africa. When you get credit, you must pay it back at a specified time.
If you fail to meet your obligation, the lender will blacklist you. Being blacklisted hinders you from accessing credit again. However, there are avenues you can use to get urgent loans. Find out which ones they are here.
Source: Briefly News
Peter Kinuthia Peter Kinuthia is a 2018 graduate of Kenyatta University with a Bachelor's degree in Health Services Management. With over five years of copy-writing experience about media, lifestyle, and health affairs, Peter has cemented a solid career in copy-writing/journalism. He previously worked with Ace My Homework before joining the Briefly team in 2017. With over 5 years of experience in Briefly, Peter has become a remarkable wordsmith. (Email: petekinuthia9@gmail.com)
Cyprine Apindi (Lifestyle writer) Cyprine Apindi is a content creator and educator with over six years of experience. She holds a Diploma in Mass Communication and a Bachelor’s degree in Nutrition and Dietetics from Kenyatta University. Cyprine joined Briefly.co.za in mid-2021, covering multiple topics, including finance, entertainment, sports, and lifestyle. In 2023, she finished the AFP course on Digital Investigation Techniques. She received the 2023 Writer of the Year Award. In 2024, she completed the Google News Initiative course. Email: cyprineapindi@gmail.com
