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Rate hike effects ‘neutral’ on car finance market

By Bidvest Bank

The recent half a percent rise in prime rates has so far had little or no effect on the market for vehicle finance.

That’s the experience at Bidvest Bank’s asset finance division, one of the country’s major providers of finance to individual and corporate car-buyers.

Business volumes have remained stable, there has been no rush to the lower end of the market and the preferred term of loan and leasing deals remains 60 months, says Byron Corcoran, head: fleet and asset finance at Bidvest Bank.

“We’re not surprised by the neutral reaction,” he adds. “Rand effects and interest rate effects tend to cancel one another out.”

Corcoran says rand weakness has stoked fears of significant price rises on showroom floors in the coming months. This led to a ‘buy-now’ mind-set in both the corporate and personal markets.

Another factor influencing the purchase decision was the potential for cost rises on extended warranties and service plans.

“Securing today’s price on a these packages makes sense as parts and labour prices may well move higher,” notes Corcoran. “Some manufacturers adjust these prices every quarter.

“Inflationary expectations have been heightened and a single interest rate rise of 50 basis points is unlikely to put a brake on purchase activity.

“The brake may go on later in the year if fears of further rate hikes prove well founded.”

One trend noticeable immediately after the end-of-January rate rise was greater corporate interest in full maintenance leasing and operating rental – options that enable a company to sit on capital while fixing future maintenance and service costs.

In the market for personal vehicles, another factor moving consumers onto the showroom floor was delayed car replacement.

“Some families have been running ageing vehicles for some time,” explains Corcoran. “They see the risk of big increases in showroom prices and decide they daren’t wait any longer.”

He says the buying behaviour of corporate buyers is highly sophisticated. They often develop their own databases to assist decision-making. Most retail buyers are less scientific.

Bidvest Bank’s asset finance boss has a tip for these buyers.

“You don’t need to build your own database,” he says. “You can make use of digital tools available on a website like www.bidvestbank.co.za.

“Lots of variables are covered, but monthly repayment calculations attract a lot of attention. If you’re prudent, you will not simply key in the current prime rate of 9%. Add a couple of percentage points and check the repayments at the higher level. Then, if rates rise again you won’t get a nasty surprise.

“Don’t be fearless about credit. Be prudent. That way you get maximum long-term enjoyment out of your new car.”