With the current weak state of the rand and further increases in inflation predicted, the South African Reserve Bank has been forced to raise interest rates – and further rate hikes could be in the cards.
Here we outline some of the ways South Africans can protect themselves against the impact of future interest rate hikes.
Interest rate hikes in SA
As a result of economic decline and rising inflation, interest rates in South Africa have hiked 175 basis points since January 2014, and are still on the rise. The South African Reserve Bank raised its repo rate by 25 points again in March this year, to 7 percent.
The prime lending rate – the figure charged by banks to customers – is currently 10,5 percent. This comes after the Reserve Bank raised interest rates by half a point in January.
How to protect yourself against interest rate hikes
The most common type of loans with steadily increasing interest rates are mortgages, car loans and credit-card debt. With interest rate hikes, these all become significantly more expensive as consumers absorb the higher cost of borrowing.
Here are some steps that can help protect you against interest rate hikes.
Manage credit cards carefully
Pay off store cards and credit cards on time so that interest doesn’t keep accumulating. Also, aim to pay off the debt with the highest interest rate first, and make sure you pay the monthly minimum on all debts to avoid penalty fees.
Buy wisely
With rising inflation predicted to cause spiralling food prices, it’s a good time to consider buying in bulk. (What you buy now will probably cost more in the coming months.) Also shop around for the best deals, use store loyalty cards for further discounts, and buy cheaper brands where possible.
Borrow less than you can afford to repay
When calculating what you can afford to borrow and how much your repayments will be, assume that interest rates will increase by about 7 percent per annum. If you can’t afford the repayments at this rate, borrow less.
Fix your loan rate
If you take out a home loan, opt for a fixed interest rate for a term of one to five years. This could protect you during an increasing rate cycle.
Increase repayments
If you can, pay extra into your home loan each month. This will reduce the term of your loan and the total interest that you will pay in the long run. Doing this can protect you financially, alleviating the stress of meeting your repayments when interest rates increase.
Buy a cheaper car
If you’re investing in a car, be careful when negotiating finance. Ideally, consider purchasing a cheaper alternative or buy a pre-owned vehicle that you can afford without setting yourself up for spiralling debt.
If you need a short-term loan
If you need a short-term loan to tide you over, consider using something valuable you own to obtain an asset-based loan with Lamna. The process is quick, efficient and confidential.
For more information about using an asset to secure a short-term loan, contact us on 086 111 2866 or simply complete and submit our online application form.
ILLUSTRATIVE EXAMPLE
Client borrows R10,000 for 90 days.
Loan Amount | Repayment Period | Monthly Interest | Total Cost of Loan | Initiation Fee | Monthly Fee | APR |
---|---|---|---|---|---|---|
R10 000 | 3 months | R500.00 | R2 914.50 | R1 207.50 | R569.00 | 60% |
Fixed rates range from 36% to 60% APR and payment options range from minimum 3 to maximum 24 months. Apart from the initiation and monthly fees shown below, the only additional fee is credit life insurance if the borrower does not have this already.