Minimum and maximum loan periods vary between 1 months and 10 years. Comparison interest rates vary between 6.55% and 60% p.a. Total interest repayments vary between R685.05 and R844.12 over the life of the loan. *Comparison rate is based on an unsecured loan of R20,000 for a term of 3 years. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. These rates can change without further notice. All rates quoted are per annum. For more information regarding fees click on "View fees & additional info +" for each product or contact the provider.
How to apply for variable rate car loans in South Africa
A fixed interest rate is a common feature of car loans in South Africa. They’re popular because they offer monthly repayments that never change. Therefore, most borrowers find them safer and a lot easier to budget for. However, variable rate car loans are also a thing.
In some cases, choosing this option can help you come out on top when it comes to lowering the total cost of your car loan. To reduce the risk associated with variable rate car loans, it is best to understand how they work and any other important, related information. This article covers it all for you.
How does a variable rate car loan work?
To cover the basics first, the interest rate is the price tag that comes with borrowing money from a lender. It is expressed as a percentage, and the percentage you get depends on many factors such as the loan amount and your credit score.
Now, a variable rate car loan has an interest rate which can keep changing as you pay back your loan. Most car loans are repaid via monthly instalments. Since interest is typically included in these monthly repayments, it means that every time the rate changes, either by going up or down, the payments will also follow suit.
Why do some car loans have variable interest rates?
South African lenders usually offer you the option to choose a fixed or a variable rate when you apply for your car loan. Variable-rate car loans are linked to the prime rate, and that is why they change. To better understand this, here’s how the process works step by step:
- Banks and other registered credit providers borrow money from the South African Reserve Bank, and they’re also charged interest which is called the repo rate.
- To make a profit, banks must charge their customers a rate that is more than the repo rate. This rate is called the prime lending rate or the base rate.
- The economic activity in South Africa can cause the Reserve Bank to either increase or decrease the repo rate.
- Every time the Reserve Bank adjusts the repo rate, banks also have to adjust the prime lending rate. If the repo rate increases, the banks also increase the prime rate. But, if the repo rate goes down, the prime rate is also likely to go down.
- Therefore, if you choose a variable rate, the interest rate on your loan will change as a direct result of the activities of the South African Reserve Bank.
Fixed-rate vs. Variable rate car loan
Compared to variable rate car loans, fixed rate car loans are not linked to the prime rate, and therefore, do not change. The main features of fixed-rate car loans are the monthly instalments that never change and the slightly higher interest rates. These types of loans are usually safer for longer loan terms to avoid the increased risk of a rate than can go up, leaving you with monthly repayments you can’t afford.
Advantages of variable rate car loans
- They usually offer lower starting interest rates which can help you save money if you pay off the loan quickly before the prime rate goes up.
- If the prime rate goes down, your monthly repayments will also go down, resulting in money saved.
- You can always refinance your variable rate car loan. That means you can choose a fixed-rate loan from a different lender if the loan becomes too expensive for you. If the refinancing process is cost-effective, this allows you to access the benefits of both options.
What are the risks of variable rate car loans?
- If there’s not enough information available to support your decision, you might end up with monthly repayments that are higher than you expected.
- It isn’t easy to plan for your monthly budget if the rate keeps changing.
Types of variable rate car loans
- Secured car loans – You use the car as security for the loan.
- Unsecured car loans – The loan is unsecured and often has a higher interest rate.
- New and used car loans – Car loans can be used to purchase a new or used vehicle.
- Car dealership loans – Some dealerships can finance your car purchase.
- Private seller car loans – You can finance your car purchase from a private seller.
- Personal loans – You can also use a personal loan that has a variable rate to cover the purchase price of your dream car.
Comparing variable rate car loans in South Africa
If you’re not sure which variable rate car loan is best for you, considering the following factors can help you compare your options:
- Starting interest rate: In most cases, variable rate car loans almost always have lower initial interest rates compared to their fixed-rate counterparts.
- Loan fees and charges: Even when you get a lower starting rate, check to make sure the charges and fees are still not increasing the total repayment amount.
- Repayment flexibility: It is best to pay off a variable rate loan as quickly as possible. Therefore, the repayment plan should give you the flexibility to make additional or early repayments without having to pay any penalty fees.
How to use the variable rate car loan calculator
Monthly payments are a big part of your variable rate car loan. Our variable rate car loan calculator helps you to choose the best monthly repayment option. Ideally, your payments should be affordable while still allowing you to pay off the loan as quickly as possible.
To get started with the calculator simply input your loan amount and term, then click the “Calculate” button. You’ll then be able to view the estimated monthly payment results in our comparison tables which feature several top South African lenders.
Why should you choose a variable rate car loan?
Variable-rate car loans are usually recommended in the following situations:
- Short-term loans – This allows you to quickly make your payments before the rate increases.
- Controlled variable rate – This is when the lender has a maximum variable rate that stops your monthly instalments from becoming too expensive.
- Stable or decreased economic activity – The rate is unlikely to change if the economy is stable. Also, the rate typically goes down if economic activity decreases and in that case, a variable rate loan might help you save.
How to apply for a variable rate car loan in South Africa
Have you checked our comparison tables yet? After you have used the information in this article to pick an option from our list of featured lenders, click the “Go to Site” button. This will bring you straight to the lender’s website so you can start your online vehicle finance loan application.
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