fixed or linked interest rate

[fran13]

Hi there,
I'm in the process of buying a car and need to choose between fixed or linked interest rate.
I can get 9% linked (prime) or 11.85% fixed.
I'm struggling with the decision.
The fixed is about 3% higher, that's 6 times 0.5% increases...
This calculation tells me that there needs to be 6 increases in the next 5 years for the 9% to be more that the 11.85%? Or am I missing something? what's the likelihood of this happening?
Any advice/opinions?
(I know a crystal ball would work best , but i'm looking for a few opinions)
Thanks

 

[supersunbird]

Hi there,
I'm in the process of buying a car and need to choose between fixed or linked interest rate.
I can get 9% linked (prime) or 11.85% fixed.
I'm struggling with the decision.
The fixed is about 3% higher, that's 6 times 0.5% increases...
This calculation tells me that there needs to be 6 increases in the next 5 years for the 9% to be more that the 11.85%? Or am I missing something? what's the likelihood of this happening?
Any advice/opinions?
(I know a crystal ball would work best , but i'm looking for a few opinions)
Thanks

Take the linked, save up extra money every month so you can put a lump sum in at some stage, will lower your monthly payments or decrease your term.

 

[ToxicBunny]

Yeah, take the linked.. but treat it as if you took the fixed... save the difference, you will be better off in the long run...

It would have to be hiked beyond the 6 0.5% increases to make the linked cost more than than the fixed.. (unless the interest rate goes to 11.85% very very quickly)

 

[Sinbad]

Yeah, take the linked.. but treat it as if you took the fixed... pay the difference into the finance account, you will be better off in the long run...

It would have to be hiked beyond the 6 0.5% increases to make the linked cost more than than the fixed.. (unless the interest rate goes to 11.85% very very quickly)

Modified

 

[F1 Fan]

Definitely linked. At this point fixed does not make sense. You should however save the excess.

 

[MKFrost]

I also say linked. I reckon we will see at most one more bump of 0.5% later in the year.

Save the difference or pay the extra into the loan to get it done quicker.

 

[Chevron]

Yeah, take the linked.. but treat it as if you took the fixed... save the difference, you will be better off in the long run...

It would have to be hiked beyond the 6 0.5% increases to make the linked cost more than than the fixed.. (unless the interest rate goes to 11.85% very very quickly)

But even so. You'd still have to make up for the discount already saved in the early months when the linked was lower.

So yes. Take the linked, but save the difference.

 

[Freaksta]

Surely instead of saving the difference you should just plow it into the vehicle?

 

[ToxicBunny]

Surely instead of saving the difference you should just plow it into the vehicle?

If you want to.. then yes...

But that still counts as "saving" ultimately.. because you're saving interest in the long term.

 

[SlyFly]

Same question basically, I've got offered 9% linked and 11% fixed over 72 months. What would be the best choice at the moment to go for?

 

[DJ...]

Depends. Do you think gambling on a high interest purchase is a good idea? If your answer to this is no (which it should be), then you have your answer. Interest rates are not likely to come down again for a while...

 

[HavocXphere]

Same question basically, I've got offered 9% linked and 11% fixed over 72 months. What would be the best choice at the moment to go for?

I'd take the fixed in that scenario. Actually kinda surprised they fixed it for that long with a 2% gap.

 

[Chevron]

Same question basically, I've got offered 9% linked and 11% fixed over 72 months. What would be the best choice at the moment to go for?

If you need to take a vehicle over 72 months it means you can't afford it. Choose a cheaper vehicle over 60 months.

 

[SauRoNZA]

Take the linked rate...set your debit or as if you took the fixed rate.

Win win.

 

[DJ...]

Take the linked rate...set your debit or as if you took the fixed rate.

Win win.

And interest rates over the term spike?

 

[HavocXphere]

Take the linked rate...set your debit or as if you took the fixed rate.

Win win.

Well paying more than required is always a good plan, but I don't see it being even remotely connected to the question at hand? Its two entirely separate issues imo.

 

[SauRoNZA]

Well paying more than required is always a good plan, but I don't see it being even remotely connected to the question at hand? Its two entirely separate issues imo.

Well if the interest rate does go up then he's basically already compensated for it, if it doesn't be scores.

So he can only do better with the linked rate or break even.

 

[DJ...]

Well if the interest rate does go up then he's basically already compensated for it, if it doesn't be scores.

So he can only do better with the linked rate or break even.

Not necessarily at all. He's got 2% with some compounding to play with over 72 months. There's no hard and fast rule that says he'll break even or score. It's a gamble on the interest rates is what it is. Great if we have flat, low rates and a positive outlook with little global economic worries. A different story when we're in our current position...

 

[SauRoNZA]

Not necessarily sure.

But it's a reasonable compromise in my mind.

 

[SlyFly]

If you need to take a vehicle over 72 months it means you can't afford it. Choose a cheaper vehicle over 60 months.

I can afford it, I'm actually planning on paying more than the monthly installment (Up to R1000 some months), I just prefer committing to less.