Rate hikes will be fatal for many

It seems that it never rains but it pours for South African consumers. And it got gloomier when, a day before the annual Black Friday splurge, the South African Reserve Bank increased the repo rate by 75 basis points, which sees the prime lending rate increase from 9.75% to 10.5%.

This will have far-reaching consequences for anyone with debt, but will hit middle-class families, with their financed cars and bonded houses, hard indeed.

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Even with the “buy now, suffer later” option of a balloon payment, an entry level Suzuki S-Presso will have repayments go up by just R60, but the buyer will pay more than R42 000 in total interest over five years on a car costing R157 000.

If you bought a R2 million house at the prime interest rate a year ago, you would start out paying R15 800 a month and over the 20-year life of the loan, end up paying a total of R3.8 million.

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Now, you will pay just under R20 000 a month and a total of R4.8 million over 20 years. For some families, though, taking on debt is the only way to get through the month.

The harsh interest rate medicine will be fatal for many.