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Average interest rate charged on installment sales agreements in SA
Date: 2 January 2018 Category: Economics |
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We take a look at the average interest rate charged on installment sales in South Africa per month from January 2010 up to September 2018. If you are thinking of buying a new car or expensive furniture for your home in 2019. Think again, as the interest on this will hurt.
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Note an update of this article will follow on 27 June 2019 when the South African Reserve Bank publishes its next quarterly bulletin. Be sure to check back in then.
So thinking of buying a new car in 2019? Think again.
Based on data supplied by the South Africa Reserve Bank (SARB) which tracks the average interest rate charged on installment sales agreements (basically loan agreements to buy cars, furniture etc), contracts signed by South Africans with credit suppliers had an average interest rate of 11.17% in September 2018.
The line graph above shows the average interest charged on installment agreements per month since the start of 2010. And what it shows is that interest rates on installment sales are on the increase (largely due to increased repurchase rate (REPO) rate as set by SARB)). But banks and other credit suppliers are loading additional interest on these agreements to compensate them for the increased risk of clients defaulting on their repayments.The riskier the client is deemed to be the higher the interest rate, and the less risky the client is seen to be the lower the interest rate. Another way the rich is getting richer and the poor getting poorer. But that is a discussion for another day.
Lets look at that 11.17% charged on installment sales. Most people would look at that rate and say, ah that is not bad. Its not even that high. Well yes it doesnt look very high. But just how much are you actually paying in interest over the period in consideration? Well lets create a few scenarios.
Scenario 1: Clive wants a new furniture set that is going to cost him R30 000. He doesnt have R30 000 available to him so he decides he will "lay buy" it. Basically he will enter a credit agreement to pay off the R30 000 for the furniture set. So lets say he agrees to pay off the R30 000 over 12 months at an interest rate of 11.17% (the rate mentioned earlier). The total amount of interest he will be paying over the 12 months will equate to R1 846 (or 6.15% of the total repayment).
Scenario 2: Pinkie wants to buy a fancy new car in 2019. So she agrees to buy a car valued at R350 000 over 5 years (60 months), at a interest rate of 11.17%. The total interest that Pinkie will pay on her fancy new car over the 5 year period is R108 373 (or 30.96%) of the total repayments is made up by interest repayments. The total repayment for the R350 000 car will be R458 373.
So you sure that 11.17% charged on installment sales are still low?
When taking on credit, take it on only when its absolutely necessary. Or save a few more months and put down a deposit as it will save a lot of money. Lets assume Pinkie saved for a few months and bought the R350 000 car by paying a R25 000 deposit on the car. The total repayment on the car will then amount to R425 632 (plus the deposit of R25 000) which amounts to R450 632 (which is a interest saving of R7 741) thanks to saving a few months before buying the new car.
Lets look at that 11.17% charged on installment sales. Most people would look at that rate and say, ah that is not bad. Its not even that high. Well yes it doesnt look very high. But just how much are you actually paying in interest over the period in consideration? Well lets create a few scenarios.
Scenario 1: Clive wants a new furniture set that is going to cost him R30 000. He doesnt have R30 000 available to him so he decides he will "lay buy" it. Basically he will enter a credit agreement to pay off the R30 000 for the furniture set. So lets say he agrees to pay off the R30 000 over 12 months at an interest rate of 11.17% (the rate mentioned earlier). The total amount of interest he will be paying over the 12 months will equate to R1 846 (or 6.15% of the total repayment).
Scenario 2: Pinkie wants to buy a fancy new car in 2019. So she agrees to buy a car valued at R350 000 over 5 years (60 months), at a interest rate of 11.17%. The total interest that Pinkie will pay on her fancy new car over the 5 year period is R108 373 (or 30.96%) of the total repayments is made up by interest repayments. The total repayment for the R350 000 car will be R458 373.
So you sure that 11.17% charged on installment sales are still low?
When taking on credit, take it on only when its absolutely necessary. Or save a few more months and put down a deposit as it will save a lot of money. Lets assume Pinkie saved for a few months and bought the R350 000 car by paying a R25 000 deposit on the car. The total repayment on the car will then amount to R425 632 (plus the deposit of R25 000) which amounts to R450 632 (which is a interest saving of R7 741) thanks to saving a few months before buying the new car.