The change in the repo rate could have a significant impact on the interest rate attached to your loans. However, this will depend on the type of interest rate you chose when you took out the loan. The most common interest rates are fixed interest and variable interest rates.
Fixed interest rates don’t change. It remains the same throughout the duration or term of the loan. On the other hand, variable interest rates could change, depending on the movement of the repo rate. This, in turn, is determined by the South African Reserve bank.
Let’s see how these changes affect your debt.
Mortgage: If the governor increases the repo rate, the interest rate for your loan will increase if it’s not fixed. The lender will then adjust your instalments according to the repo rate. However, there is a limit on how much the interest can be adjusted with some home loans. Moreover, you can renegotiate your interest rate if you think it’s unreasonable.
Personal loans: Most personal loans are unsecured loans. This means that there are no assets attached to the loan, and the interest is already higher than with other types of loans. However, most personal loans have a fixed interest. This means a change in the repo rate won’t have an impact on your instalments. However, always read the fine print on your contract.
Credit cards: One of the things you need to remember about credit cards is that the interest you pay on point of sale transactions is different from the interest you pay on ATM withdrawals. According to the National Credit Regulator, your lender is not supposed to charge you more than a 20.5% interest rate on your credit card. If you have flexible interest rates for your credit card, the lender can adjust it, but the rates must never exceed 20.5%. If it does, you’re allowed to report the lender to the credit ombudsman.
Vehicle loan: Just like all other loans, the interest rate on vehicle loans is personalised. This means that it will be based on your profile – the amount you earn, credit score, affordability, etc. You will also be able to choose between a fixed or variable rate. If you’ve chosen the latter, expect some changes in your monthly instalments when the repo rate changes.
If you suddenly find yourself unable to pay your debt because of changes in interest rates, speak to your lender to see if your instalments can be adjusted, or talk to us at DebtBusters and we’ll see how we’re able to assist you.