Head of National Debt Advisors Sebastien Alexanderson shows what two hikes have added in rands, what a third would cost, and what to do before the Reserve Bank announces its decision.
The Reserve Bank raised the repo rate to 7% in May and to 7.25% in September. Prime is now 10.75%, up from 10.25% at the start of the year. For households already stretched by fuel, food and electricity costs, the extra 0.5 percentage points have landed on top of budgets that had no room left.
The Monetary Policy Committee announces its next decision on 19 November. Head of National Debt Advisors Sebastien Alexanderson said many households still hadn’t worked out what the two hikes cost them.
“Most people hear ‘a quarter of a percent’ and think it’s small,” says Alexanderson. “It isn’t, when it comes out of the same salary every month. Two hikes mean the bond and the car loan both cost more, and the money has to come from groceries, school costs, or savings that are already thin.”
National Debt Advisors calculated what the two hikes have added to two common loans, assuming both are priced at prime, and the rate rose from 10.25% to 10.75%.
What two hikes have added
- R1 million bond over 20 years: The monthly repayment has gone from R9,816 to R10,152. That is R336 more a month, or about R4,030 a year.
- R300,000 car loan over 60 months: The monthly repayment has gone from R6,411 to R6,485. That is R74 more a month, or about R890 a year.
- Both together: R410 more a month, or about R4,900 a year.
If the Reserve Bank hikes by another 25 basis points on 19 November, taking prime to 11%, the same bond would cost a further R170 a month and the car loan a further R37. That adds about R2,500 a year across both.
“Every hike lands hardest on people who are already close to the edge,” says Alexanderson. “Our analysis of 109,425 clients who have entered debt review since 2014 shows the average client earns R15,737 a month and owes R174,787, and 98% hold at least one unsecured agreement. When rates move, these households have nowhere left to cut.”
Five steps to take before 19 November
- Work out your own number: Add up what your bond, car and other loans cost you today, and what they would cost at 11%.
- Call your lender early: Ask about options before you miss a payment, not after.
- Don’t borrow to cover repayments: A new loan or card to pay an old one makes the next hike harder to survive.
- Cut the smallest debts first: Clearing small accounts frees up cash that you can use to cover higher repayments.
- Check if you qualify for debt review: Use NDA’s free debt review calculator to see whether one affordable monthly payment could replace several.
“You can’t control what the Reserve Bank decides,” says Alexanderson. “But you can decide to look at your numbers now, instead of waiting for the decision to scare you into it.”
Consumers can use NDA’s free debt review calculator here.
About National Debt Advisors
National Debt Advisors is a South African debt counselling firm that has helped over 100 000 clients since 2014 restructure their debt and work towards financial recovery. NDA works with consumers struggling with unmanageable debt to negotiate reduced payments with creditors and provide a single, manageable repayment plan under the National Credit Act.
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Author: Omega Ngema from Financial Wealth Holdings on behalf of National Debt Advisors.
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