All you need know about interest rates

Firstly, can you afford a new car?

So, you have your eye on a sexy new car – great. But before you make a shortlist, visit showrooms and go for test drives and, most importantly, take a long, hard look at your finances.

Everything has become so expensive and costs add up. Now, I don’t know why stock markets react like an insane border collie with ADHD every time a coconut falls off a tree on some small island, but the reality of the world is this; it’s a financially volatile place.

While there are some events that we just can’t plan for or explain, such as COVID-19 and the 2008 Global Financial Crisis it’s important to understand how all these things affect your wallet, and the biggest culprit out there is the INTEREST RATE.

When it comes to financing, the interest rate is the difference between eating pre-made schnitzels for dinner at the end of the month – or house-brand baked beans on toast. 

The interest rate affects everything. Credit cards, home loans, car instalments, clothing accounts, everything that you must pay off.

In a nutshell when the interest rate goes up, you pay more for your credit, and when it goes down, you pay less. And you need to make sure that you are prepared for all the bumps and scrapes.

There are so many factors that affect the interest rate: inflation, wars, financial markets, the value of the dollar, what the Kardashians wore last Thursday and, honestly, there’s nothing you can do about it. But you can prepare yourself, because it could get as bumpy as a ride in the back of a beat-up jalopy over some small stones.

Some points to note

• The type of interest rate that you choose is important. A fixed rate gives you the security of paying a set amount for the loan without having to ride the rollercoaster interest rate hike cycle on which most of SA finds itself now – great. But, a linked interest rate will benefit you when the interest rate comes down again and your buddies are stuck paying a higher fixed interest rate. So, think carefully about which kind of interest rate you choose.
  
  
• Save. Save. Save. You need to aim at saving at least 20% of your earnings. Do whatever it takes. You don’t need to subscribe to so many streaming services. Also, stop buying lattés every morning and get a flask. Save as much as you can. There is no way around this. The more you save, the less money you’ll need to borrow. The less interest you pay, the quicker you pay off your stuff. If nothing else, remember this: SAVE YOUR MONEY.
  
  
• Have a budget; know where your money goes. Just imagine you’re a bookkeeper for the mob, you’d better know where every single cent is, right? Treat your finances the same way. Know what your bank fees are, food costs, petrol. Everything. Budgeting is the one sure-fire way to get control of your finances. Do it. Can you smell it yet, that factory-fresh new car smell? Budget. Every single cent.
  
  
• Stop saving for rainy days. Having a firm grasp on your spending and saving habits is the only umbrella you need.

Now you understand how the interest rate affects your car finances. You’re budgeting properly and saving at least 20% of your earnings, or you’re at least one daily coffee-shop muffin away from that goal. Great. 

So, ask yourself – can you truly afford the car that you want to buy, or should you lower your expectations a little? The good news is that your bank (Absa) will be able to help you find a great car suited to your budget. 

OK, that’s enough scary finance talk for now. Now, go watch that review of the latest coupé while you try to convince yourself it’d be the perfect family car.

Try our Vehicle Finance Calculator to see what you can afford  or explore Vehicle Finance Solutions for more information on Absa Vehicle Finance’s offerings.