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News Room

How Does Junk Status Affect Car Owners?

Megan Ellis
2017-04-25
South Africa’s recent downgrade to junk status is bound to affect us in many ways. Here how it is going to impact car owners.
You might be sick of hearing about junk status, but it doesn't negate the fact that it's going to affect South African consumers in a variety of ways. This is especially true if you are a car owner. So, what does junk status mean for you?

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Filling Up Is Going To Cost More

Fuel economy in a vehicle is going to be increasingly important for vehicle owners in South Africa. This is due to the expected rise in petrol prices. With the weakening rand, oil is going to become more expensive, which ultimately raises the price of petrol. Consumers with gas guzzlers are going to be hardest hit by this increase. But, in the end, all motorists are going to be paying more to fill up. The Automobile Association has already forecast a rise of up to 55 cents a litre for petrol in May. Diesel is expected to rise by about 39 cents a litre and paraffin is expected to rise by 41 cents per litre.
"The loss of confidence by investors, and the sovereign ratings downgrades by ratings agencies Fitch and S&P, have led to the rand slipping heavily against the US dollar, down from around R12.35 at the beginning of the month to its current position of around R13.40," the AA said in their mid-month forecast.
The association says that the rand's decrease in value contributed to three-quarters of the expected increase. In the past week, however, the rand has increased in value, which is good news for consumers if the trend continues.

Maintenance And Insurance Will Be More Expensive

According to the TransUnion Vehicle Pricing Index Report for Q1 2017, among the expected consequences of junk status are increases in maintenance and insurance premium costs. In terms of maintenance, any imported parts are going to become more costly due to the weakened rand. Unfortunately for us, most vehicle parts are imported. This, in turn, will increase the cost of car insurance premiums.
"For the short-term insurance industry in particular, this means that the cost of motor parts, which are mostly imported, will increase exponentially, which is likely to lead to increased repair costs followed by increased premiums for policyholders," Chief Executive of the South African Insurance Association Viviene Pearson said in a statement.

Car Loan Repayments Will Rise

While interest rates have been steady over the past year, there is always the risk of a rise as the effects of junk status begin to ripple further through the economy. According to TradingEconomics.com, it is forecast that South Africa's lending rate will increase to from 10.5% to 10.75% in July. If the interest rate rises, you're going to see a significant amount added to your debt. The percentage increase might not seem like much, but depending on the amount of your loan, its interest plan (fixed or compound) and its payment period, you can see thousands of rands added to your debt.

You Should Hold Off On Buying That New Car

In addition to increased lending rates, car prices are also expected to rise due to the weakened rand. This means that, not only would you have extra interest to pay on your loan, but you'd also have to take out a bigger loan. This is unadvisable during a period of economic uncertainty. While the effects of junk status haven't been fully realised yet, there has already been an increase in car prices, according the TransUnion Vehicle Pricing Index. According to the index, new and used vehicle prices have increased over the past year.
"The TransUnion SA Vehicle Pricing Index (VPI) for new and used vehicle pricing increased to 8.8% and 3.7% in Q1 2017, from 6.6% and 2.2% in Q1 2016 respectively," the report says. "Consumers in the new buying cycle will be under severe strain as their disposable income decreases," TransUnion says.
Hopefully, things can turn around in the next few months… Whatsapp 076 888 4931.
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