The “pandemic period” property market is booming, three out of four residential property sales have been supported with a mortgage agreement. True story for banks and mortgage originators.
Mortgages are the cheapest form of credit and interest rates are at their lowest in 67 years. Half of all consumer debt is allocated to mortgages. The total home loan book is valued at R1.1tr . Great news for the 1.6m consumers who are building wealth through property funded by a mortgage loan. Thanks to the National Credit Act, interest rates are capped at 15.5% per year . The true cost of credit is built in the long-term nature of a home loan over 240 months.
Funders are willing to finance vehicles either by way of a secured loan, or for cars less than R300 000, unsecured loans are on offer. This is where credit starts to become expensive, secured credit tops out at 20.5% per year and unsecured credit 24.5% per. Factor in longer loan periods of up to 99 months and balloon payments which entice immediate gratification of “more vehicle for less monthly repayments” and the overall cost of finance starts to become seriously expensive.
Payday loans or short term credit is uncomfortably expensive. As the name suggests, these loans have a maximum six-month term and are small in value . Interest rates are quoted per month, a whopping 5% per month, convert that to 60% per year.