Since the arrival of Covid-19 in South Africa, the Reserve Bank has cut the repo rate three times to help our country deal with the economic impact of the pandemic. It sounds like a lot of financial jargon, but the repo rate is important to every person who has a loan.
Let’s start by getting the jargon out of the way. The repo rate – short for repurchase rate – is the interest
rate at which the South African Reserve Bank lends money to the commercial banks so that they can
extend loans to consumers.
When the repo rate changes, therefore, interest rates on bank loans also change.
The prime interest rate is the benchmark rate for a customer with a good credit record and is used for
secured loans e.g. homeloans and vehicle finance. Banks use the prime rate as a starting point when
they decide on the interest rate to offer a customer. Depending on how risky or not you are as a lender,
the type of loan you want and the risk appetite of the bank, you will get offered a rate that is below or
above prime. At the moment, prime is 7.25%, which is 3.5% higher than the repo rate.
Now that we know all this, it is easy to see how the interest rate on a loan from a bank will go up and
down according to the repo rate – unless you have chosen a fixed interest rate when you signed your
But what about a personal loan from an unsecured lender like Bayport?
In answering this question, we turn our attention to the National Credit Act (NCA). The NCA determines
the maximum interest rate a credit provider can charge, and this is expressed as a percentage above the
For example, a personal loan cannot have an interest rate higher than 21% above the repo rate (24.75%)
, a credit card maximum is 14% above it (17.75%) and the maximum for a mortgage is 12% above
When the repo rate changes, the interest rate on your personal loan may or may not change, depending
on the conditions of your loan agreement. If your interest rate is linked to prime, it will come down or go
up in line with the change in the repo rate. If it is not linked to prime or the repo rate, it is likely to stay
If you have a vehicle or home loan with a bank that is linked to the prime rate, the fall in the interest
rate is good news for you. The instalment on your loan will come down, giving you more money in your
pocket every month. If you don’t need that extra cash for other expenses, the smart move will be to
keep paying your higher instalment, which will help you pay off the loan faster.