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After holding steady at a 15-year high for seven consecutive meetings, it’s likely that the Monetary Policy Committee’s meeting on 19 September will bring good news about a rate cut. The repo rate – the rate at which the South African Reserve Bank lends money to private banks – is currently at 8.25%. The prime lending rate, which is the amount banks charge customers, is 11.75%. Given that inflation has subsided in recent months, experts predict a 25 basis point drop.
Your credit score could improve. When the repo rate is hiked, usually to slow inflation, commercial banks increase their interest rates. This means that the cost of borrowing money increases. Conversely, when the repo drops, the cost of borrowing decreases and it becomes easier to meet your loan obligations. This, in turn, will have a positive impact on your credit score. A lower prime lending rate means you can borrow more from the bank, giving you better buying power.
A lower interest rate will reduce your monthly bond repayments. On a R2m bond, a 25 basis point cut to take the prime lending rate from 11.75% to 11.5% will reduce the monthly bond repayments by R345 from R21 674 to R21 329. Bendall suggests, however, keeping your bond repayment at the same level if you can afford it. By paying more into your home loan, you will save on interest and other administrative costs and shave time off the loan repayment period.
You will also pay less on your car repayments and other loans. Although interest rates on car financing vary between financial institutions, they are calculated based on the prime lending rate.
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