Buying A Car

Car loan interest rates – How are they affected by the lower repo rate

October 7, 2024October 7, 2024By Today's Digital
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Car loan interest rates – How are they affected by the lower repo rate

The recent announcement of a lowered repo rate ushers in an exciting new dawn for South Africans looking to borrow money to make big purchases. Buying a new or used car has now become more affordable. And with further cuts predicted to take place in November, it’s a season of hope and new possibilities. But how does the repo rate affect your car loan interest rate? What is the interest rate for car finance? We unpack the answers…

What is the repo rate and why does it matter?

The repo rate is the interest rate at which the South African Reserve Bank (SARB) lends money to commercial banks. 

When the repo rate increases, it becomes more expensive for banks to borrow money, which means they pass that cost onto consumers through higher loan interest rates. 

Conversely, when the repo rate decreases, banks can afford to offer loans at lower interest rates, saving consumers money on big-ticket items like cars. 

How has the repo rate affected car loan interest rates?

In September 2024, the SARB lowered the repo rate by 25 basis points, marking the first rate cut since 2020. This reduction has a direct impact on car loan interest rates in South Africa. 

Simply put, a lowered repo rate means lower interest rates on car financing, which is fantastic news for anyone planning to pay off a vehicle.

Woman gives a thumbs up after buying a used car for sale

Why is the lowered interest rate good news for car buyers?

The reduction in the repo rate makes it cheaper to finance a car. 

Whether you’re buying your first car, upgrading to something newer, or simply trying to pay off an existing loan, lower interest rates mean you’ll pay less in the long run. This translates into more manageable monthly payments or even a shorter loan term.

What is the interest rate for car finance?

As of late 2024, car loan interest rates in South Africa generally range between 10% and 14%, depending on a number of factors, including your credit score, loan term, and the lender. 

With the repo rate cut, there’s potential for these rates to dip slightly, which could impact overall loan costs for the better.

How much can I save on my car loan?

Let’s put this into perspective: With the repo rate lowered by 25 basis points, you could be saving around R100 per month for every R100,000 you borrow. 

While this may not amount to much, it adds up over the duration of your loan. If you’re wanting to finance a used car for sale over, for instance, five years, those monthly savings can amount to thousands of rand saved in total.

How does this impact first-time car buyers? 

If you’re buying your first car (whether it’s new or used), you’re probably working within a budget. 

A lowered repo rate makes financing a vehicle more accessible and affordable, helping you get on the road without breaking the bank. 

Whether you’re a student, a young professional, or someone who’s just landed their first full-time job, lower interest rates are a huge bonus.

Man is excited to drive his new car

Want to upgrade your car? Perfect timing

Even if you already own a car, the lower interest rates make this an ideal time to upgrade. 

If you trade in your current vehicle and take out a loan for a newer model, you’ll benefit from the lower interest rate, which could decrease your monthly repayments.

Paying off an existing car loan? Here’s what you should know

If you’re already financing a car, you might wonder if the lower repo rate will affect your repayments. 

Unfortunately, if you’re locked into a fixed-rate loan, your payments won’t change. However, if you have a variable-rate loan, your interest rate should adjust based on the new repo rate, meaning your monthly payments are likely to decrease.

What are your options moving forward:

You might be taking a squizz at some used cars for sale or have an existing loan. Here are some considerations:

  • Shop around for the best rate: Even though car loan interest rates have generally dropped, different banks and lenders offer different deals. It’s worth comparing rates before signing any paperwork.
  • Check your credit score: A good credit score can help you secure an even better interest rate. If your score isn’t great, consider improving it before applying for a loan.
  • Consider refinancing: If you’re currently paying off a car loan, it might be worth exploring refinancing at a lower interest rate, especially if your loan has a variable rate.

Person negotiates improved car loan interest rates

How to take advantage of the lowered repo rate

Making the most of the lowered repo rate involves taking the following steps going forward:

  • Negotiate with lenders: Don’t be afraid to negotiate with banks to get the best possible deal.
  • Do the maths: Use a loan calculator to work out what your monthly repayments will be at the new, lower interest rate.
  • Think long-term: Consider how much you’ll save over the lifespan of the loan, not only on monthly payments.

Is now the right time to buy a used car for sale?

For many South Africans, the repo rate cut offers a new window of opportunity. Lower loan interest rates mean it’s a good time to consider buying an affordable used car, especially if you’ve been holding off due to high loan costs. 

A thought-through evaluation of your financial situation is vital before taking the next step, preventing any burdonsome or unrealistic costs on your unique circumstances. 

Before you sign on the dotted line, be sure to only consider used cars for sale from a trusted dealership or online platform. 

Here’s a helpful checklist to evaluate a used car dealership:

Lowered interest rates usher in a new dawn for the South African economy, encouraging spending and stimulating much-needed economic growth.

The decreased car loan interest rates are an opportune time for anyone looking to finance a car. Be sure to find a reliable and trustworthy dealership to source your potential used car for sale.