Making sense of interest rates

Fixed or Flexible Interest Rates

Any kind of loan will come with interest – it’s the price of getting things on credit! When financing a car you can choose between a fixed or flexible interest rate. Both affect your monthly payment and what you’ll be paying in the long term.

A flexible interest rate is also called a linked interest rate, because it changes every time the South African Reserve Bank changes its prime lending rates. So if the country’s interest rate decreases, so does the interest you pay but whenever the interest rate goes up, you pay more. This means that your instalment will change from time to time.

With a fixed interest rate you pay the same interest every month, so your instalments stay exactly the same throughout your finance contract. If you are offered a fixed interest rate it is likely to be higher than if you are offered a linked interest rate, but remember that you won’t be affected when the prime interest rate goes up.


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