Stand to win car finance at the prime interest rate

When you’re buying a car, the test drive is now the only part of the process you can’t do digitally with the help of Avo Auto and MFC, a division of Nedbank. A vehicle is usually second only to your house as your most expensive asset, so you’re going to check it out for yourself before you apply for finance to buy it. But apart from that important physical interaction, you can accomplish the rest of your car-buying journey online.

Avo Auto saves you time searching, because you can search dealerships within your preferred area for cars that have all the specs you want - from the price, make and model to the age and colour. Once you’ve found the vehicle you want, Avo Auto makes it simple to apply for finance.

And there’s more: you stand a chance to win an attractive discount on the cost of financing your car.


Win your car loan at the prime interest rate and save

Applying digitally for vehicle finance through Avo Auto now gives you a chance to save some serious money. Avo Auto is running a competition until 31 December 2022 for new car finance applications – lucky winners get their vehicle finance at the prime interest rate. If you search for a car, apply for finance, accept the quote and sign the finance agreement (a variable-interest agreement, not a fixed-interest agreement), you will be entered into the competition draw automatically. Terms and conditions apply.

How much of a difference will that make, you might ask? To understand the implications, we need to consider two factors: what the prime interest rate is, and the difference between variable and fixed interest rates.


What is the prime interest rate?

When you apply for a loan, the bank weighs up your application according to several factors before settling on an appropriate interest rate. This is when your credit history comes into play. If you have a better credit score than someone else applying for a loan, you may be charged a lower interest rate than they are, even if it’s for the same amount over the same term. Clients with good credit scores and a clear credit history, among other factors, are typically offered interest rates closer to the ‘prime’ lending rate for a variety of loans, including car finance, home loans and student loans.

The prime interest is the default rate on which all loan agreements are structured and is influenced by the repo (repurchase) rate, which is the interest rate that the South African Reserve Bank (SARB) charges commercial banks. Banks set the prime lending rate a certain percentage higher than the repo rate. When the SARB raises or lowers the repo rate, the prime lending rate rises and falls by the same amount. 

 

If you opt for a variable interest rate and the prime rate drops, so does the interest on your loan

 

If you opt for a variable interest rate and the prime rate drops, so does the interest on your loan

If you’re offered a loan and you are assessed as a higher risk because you have a poor credit history, the interest rate could be a lot higher than prime. So, the better your credit record, the closer to prime your interest rate will be. This principle applies to all types of bank loans, including car finance.

Say you apply for MFC finance via Avo Auto and are approved at a variable interest rate of 15%, and you’re a winner in this competition. Your interest rate will be adjusted to the prime interest rate at the time (7.75% in April 2022) and you’ll get a reduction of 7.25% on your interest rate, almost cutting it in half and saving you a lot of money in the long run. 


Variable versus fixed interest rates

There’s no point trying to decide whether variable interest rates on loans are ‘better’ than fixed interest rates, or the other way round. Each option has its own pros and cons, which is why MFC leaves the choice up to you when you apply for car finance. Whichever you choose depends on your personal circumstances at the time, and what you think will happen to interest rates over the term of your loan.

If the SARB decides inflation is still too high, it may increase the repo rate again. A major attraction of a fixed interest rate is that your instalment amount never changes, even if the repo rate does increase. That way you know exactly how much you need to budget every month over the term of the loan. If you believe inflation may drive rates up significantly while you’re still paying off your loan, a fixed rate ensures that you will always be able to afford your instalments, even if the rate is a bit higher than the variable rate you may be offered.

But you’re also tied to that slightly higher rate throughout the term of your loan. If the economy improves and interest rates drop, you’ll be paying more interest at fixed rates than you could’ve been. That’s when variable interest rates are the better money choice. If you opt for a variable interest rate and the prime rate drops, so does the interest on your loan. That could mean real savings, especially if you win in this competition.

Whether you’d like a variable or fixed interest rate, Avo Auto and MFC, a division of Nedbank, can help you apply for car finance simply and safely online.