Commentary from African Bank on drop in repo rate

“The 0.25% drop from 6.75% to 6.5% in the repo rate announced today may bring some welcome relief to debt-strapped South Africans although the effects will be largely limited to high ticket, longer term finance with variable rates, like vehicle finance and home loans. Ideally one should continue to repay at the higher rate if you have the flexibility to do so and shorten the repayment time,” says Basani Maluleke, CEO of African Bank.

“While there will be no change to existing unsecured personal loan repayments as these contracts have a fixed interest rate for the term of the loan, customers juggling multiple unsecured loans should think about consolidating these loans into one consolidation loan, at a new lower interest rate. The drop in repo will influence all new loan rates, so it could save the debt holder to consolidate,” she says.

Maluleke says there will also be an impact on credit card or revolving loan repayments at variable interest rates, although this impact may well be marginal if your outstanding balance is small. “The important thing to remember is that if there are any savings on the minimum instalments due to the lower interest rates being charged, one should consider paying more than the minimum repayment into one’s credit card to pay off this debt faster,”  concludes Maluleke.