Friday | 05 June | 2020
By Nico Strydom
Since the beginning of the year the Reserve Bank has already lowered interest rates by 2,75 per cent.
In May the Reserve Bank lowered the interest rate for the fourth time this year in view of Covid-19’s effect on economies worldwide.
The drop in interest rates was not good news for everybody, but there are ways to make certain aspects work in your favour. The drop in interest rates is a relief to individuals and companies with debt but is bad news to savers. The repo rate is now 3,75 per cent and the prime rate of banks is 7,25%.
Sarah Nicholson, commercial manager of the finance company JustMoney, says people who are paying off debt but do not have money can benefit from the lower interest rate if they have a loan at a variable interest rate. “You will pay a slightly lower amount monthly. The lower interest rate will also help if you are planning to take out a new loan.”
A loan consists of the debt amount plus the interest that will be levied during the loan period. “With South African interest rates at an almost 50 years low it makes sense to maintain or even increase the amount that you pay on a loan every month, if you can afford it. In this way you can, for instance, shorten the term of your mortgage or in general pay less interest.”
According to Nicholson consumers should try to develop a good credit score. “Based on your financial history, this points to the probability that you will pay your monthly instalments. If your credit score is good, you will probably be offered a good interest rate when you take out another loan or is approved for a homeloan.”
If you are thinking of buying a house, now could be a good time to look around, says Nicholson. “You can pick and choose, house prices are under pressure and banks are competing for business. You may find that the seller could be more comfortable with a lower offer, or you could try for a house in a residential area that was previously out of reach for you.”
According to Nedbank the lower interest rate also means that if you already have a homeloan, you could save a surprising amount because of the longer loan period. Nedbank encourages consumers to utilise the lower interest rate to pay off debt and save money.
“The faster you pay off debt, the less it is going to cost you in the end. Therefore, take the time to see how you can use what you will save to pay off your debt.”
* All information was correct at the time of publication.