Hyper-Inflation and the impact on loans/bond

killerbyte

Expert Member
Joined
May 10, 2007
Messages
2,330
This is a what if scenario, and I'd love to hear your opinions on it...

You buy a car and you finance it for R100k, you decide to fix your interest at 10%. The term is 72 months.

One year into the loan the country goes the way of Zim. Hyper-inflation, the printing presses run non-stop to print more money and the Rand tanks.
You are still able to afford your repayment (barely). But the bank is then losing out. The R2000 you are paying per month is worth far less than it used to. Maybe its so bad that R2k gets you a loaf of bread.

Can teh banks adjust the repayment? What would they do in this situation?
 

Kosmik

Honorary Master
Joined
Sep 21, 2007
Messages
21,970
This is a what if scenario, and I'd love to hear your opinions on it...

You buy a car and you finance it for R100k, you decide to fix your interest at 10%. The term is 72 months.

One year into the loan the country goes the way of Zim. Hyper-inflation, the printing presses run non-stop to print more money and the Rand tanks.
You are still able to afford your repayment (barely). But the bank is then losing out. The R2000 you are paying per month is worth far less than it used to. Maybe its so bad that R2k gets you a loaf of bread.

Can teh banks adjust the repayment? What would they do in this situation?
Not to my knowledge. The contract remains in force at the previous terms. They could in theory call up the loan but that's a different kettle of fish. Technically, its not costing them anything more either as the money THEY spent on the loan was at the time prior to hyper inflation.
 

bchip

Expert Member
Joined
Mar 12, 2013
Messages
1,179
Can teh banks adjust the repayment? What would they do in this situation?

This is a very complex situation, not with an easy answer.
My best guess is that - debt stays in force, so win! but
Your salary/income would be inflated away though and you would struggle to make the payments.
The country would only go through this in dire times so looking for work will be a struggle.

The price of the property would increase but because of bad circumstance effectively the house price stays low.
If you cant pay the mortgage the banks still own the house so they can sell and would make their money back.

You also cant really sell your house, because the minute it does get sold you sit with cash..which gets eroded
To avoid this you want to move to another currency, but like with Zim people tried to
get their money out to USD but restrictions were put in place.

Doesnt really seem like a win for anybody.

Edit: Replace house with car but same principle applies
 
Last edited:

saturnz

Honorary Master
Joined
May 3, 2005
Messages
17,217
if the SARB adjusts the interest rate you could be in a problem, in the 1980s with relatively high inflation we saw interest rates hit over 20%

I actually have to get some legal advice on a similar issue, I want to insert a "hyper inflation" clause when my leases come up for renewal since the prospect of this is quite real.
 
Joined
May 9, 2012
Messages
9,325
In a hyper inflationary environment the interest rate doesn't keep up so debt basically gets wiped out.

You'll have far bigger problems than your car payments however.

My sis took a mortgage out in Zim when it was 1:1 with USD, it's now I think 50:1 (there's no official inflation figures so exchange rate is a good indication), her home loan is now basically 50 times cheaper.

I actually have to get some legal advice on a similar issue, I want to insert a "hyper inflation" clause when my leases come up for renewal since the prospect of this is quite real.

You really can talk the biggest load of nonsense.
 

chrisc

Executive Member
Joined
Aug 14, 2008
Messages
9,746
In Germany in 1921, the Mark deteriorated to 1/10 millionth of its wartime value. People selling goods on suspensive sales agreements closed up shop as it was not worth collecting the money

If you are bothered about hyper inflation, invest money into UTs and ETFs that are based overseas. Naspers earns 90% of its money from overseas business

Sygnia have a range of Euro-based funds
 

saturnz

Honorary Master
Joined
May 3, 2005
Messages
17,217
If you are bothered about hyper inflation, invest money into UTs and ETFs that are based overseas. Naspers earns 90% of its money from overseas business

the risk of hyperinflation is global, most of the major central banks are expanding their balance sheets at a rapid rate, purchasing paper assets even if denominated in foreign fiat currency is not really going to help
 

Tovad

Well-Known Member
Joined
May 26, 2012
Messages
352
Buy things with intrinsic value - gold, platinum, palladium, rhodium, emeralds (synthetic also ok)
 
Top