With the latest interest rate hike slapping on average R400 a month onto debt repayments, thousands - possibly millions - of South Africans could be pushed into bankruptcy and insolvency unless they take urgent action to curb their spending, manage their debts and slash their budgets, according www.justmoney.co.za - the online guide to money.
Paul Beadle, Managing Director of www.justmoney.co.za, says that although the Reserve Bank cited continued consumer spending as one of its main reasons for pushing interest rates up, traffic on the website reveal a very different picture. He says: "A lot of people visiting www.justmoney.co.za are still looking to borrow money via loans and credit cards, or they need help because they can no longer keep up with their debt repayments,
"Last year we had a string of stinging interest rate hikes designed to halt inflation, but it seems that South African's did not take the hint and carried on spending. So it is clear from the majority of people visiting the website that if they are still spending, they're spending money they don't have!"
Beadle said on average, the 0.5% interest rate hike would put another R350 a month on to repayments of a R1 million mortgage, whilst people borrowing R200,000 for a vehicle loan would have to find an extra R50 a month in debt repayments. Add to that the likelihood of credit card interest rates increasing, food, electricity and petrol prices soaring, plus a possible further interest rate hike, consumers could end up forking out over R1,000 a month more in the next couple of months compared to the beginning of the year.
Even for those who currently still have their heads above water, Beadle says urgent action is needed to keep their finances under control. He says: "People need to start budgeting to ensure that they are not spending more than they are earning; next they should avoid debts as much as possible, and if they have debts, they should pay off their most expensive loans first; and finally they should shop around for cheaper financial services products.
"We know that many people are on the wrong type of bank account, so switching to a more cost effective one could save them R75 or even R100 a month. For people who have not shopped around for cheaper vehicle, home or medical insurance premiums recently, they should do so now. Again they could save thousands of Rands each year on more cost-effective cover, which could be enough to help solve debt problems."
The impact of the interest rate hike
The impact on a R1 million mortgage over 20 years (240 months)
1/2% hike (50 basis points)
- Prime rate mortgage: 0.5% hike from 14.5% to 15% would add an extra R368 per month, increasing repayments from R12,800 to R13,168 per month
- Average mortgage rate of prime -2%: a 0.5% hike from 12.5% to 13% would add an extra R355 per month, increasing repayments from R11,361 to R11,716 per month
www.justmoney.co.za tip: "Use a comparison website to find cheaper mortgage quotes, because if you are currently paying prime, you could get a new home loan for a lot less." Click here to get advice on finding a cheaper mortgage
Vehicle finance costs
The impact on a R200,000 vehicle loan over 5 years (60 months):
1/2% hike (50 base points)
- Average vehicle finance at prime +1%: 0.5% hike from 15.5% to 16% would add an extra R53 per month, increasing repayments from R4,811 to R4,864 per month
- • High value car and a borrower with a good credit record at prime -1%: a 0.5% hike from 13.5% to 14% would add an extra R52 per month, increasing repayments from R4,602 to R4,654 per month
www.justmoney.co.za tip: "If your current car repayments are crippling you, it's better to trade it in for a cheaper model and enjoy the extra cash, rather than get in to repayment difficulties."
www.justmoney.co.za has been created to help South African's save money by demystifying financial services and helping them to make informed decisions about their money.
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