The Effect of the Repo Rate Drop on Consumers

Consumers welcome the news regarding South Africa’s first interest rate cut in five years. The South African Reserve Bank’s surprising announcement indicated a slight drop of 0.25%. “Although the decrease does not help those with investment savings, consumers certainly receive the announcement with open arms,” says Matthys Potgieter, spokesperson and debt expert at DebtSafe.

“Consumers can really save a few rand on their home loans,” says Potgieter. “If a consumer has a home loan of R1000 000.00, the decreased Repo Rate of 0.25%, gives a decreased amount of R167.37 a month on his/her monthly instalments.

And paying that money into his/her bond on top of the new instalment will lead to:

• A total saving of R84 789.90, over the full term of 20 years.
• Twelve months earlier settlement.”

Potgieter also advises consumers/home owners to pay the extra cash, which they save because of the Repo Rate drop, into their home loans instead of spending it on unnecessary items. If, however, consumers are over-indebted, they should make use of the snowball principle and pay their smallest debt (like a clothing account) off first with the extra saved monies.

Consumers that have a personal loan or credit card won’t be saving very much per month, but according to Potgieter it all adds up in the end. “Say a consumer has a personal loan of R20 000.00,” explains Potgieter. “The decrease of 0.25% on the Repo Rate gives a decreased amount of R2.77 per month on the consumer’s monthly instalments.

Paying that money along with the saving on his/her home loan instalment, into his/her personal loan on top of his/her new instalment, will lead to:

• A total saving of R4 339.79, over the full term of 60 months.
• Twenty months earlier settlement.”

Potgieter further highlights that a consumer’s monthly interest saving on a credit card of R10 000.00 amounts to R2.08. Credit card minimum payments are usually calculated at 5% of a consumer’s outstanding balance, this will decrease the interest portion of his/her instalment leading to a slight acceleration in his/her Principle Debt reduction, with the capital portion of the instalment being slightly higher.

This recent announcement can be the ideal motivator for consumers to try their best to lower those debt piles. If, however, consumers are already feeling the strain of debt, they can come and journey with DebtSafe. They can SMS their name as well as INFO to 30898 (at no cost) for a free debt assessment.

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