Variable vs Fixed rate

Freshy-ZN

Freshy-ZN

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For the financial boffs:

If you were about to enter (as in now) into a vehicle finance agreement would you go for fixed or variable?
 
Depends on the length of the financing arrangement and the fixed rate which you are offered. The interest rates (assuming your variable rate is linked to prime) will definately go up in the near feature.. I really doubt it'll go any lower now, only upside from here
 
Sure, need to get confirmation on the rate but generally Im thinking fixed is currently the option to choose.
 
Variable all the way. The fixed rate is probably 2 per cent higher.

Interest rate outlook
Next 12 months: No increases (maybe possible drop)
2-3 years: Stable, very little increases
4-5 years: Rates likely to rise again by up to 5 per cent

Base on a finance period of 36, 48, 54 or 6o months, you'll save more with a variable rate.

my 2 cents anyway.
 
Carbon_Fibre said:
Variable all the way. The fixed rate is probably 2 per cent higher.

Interest rate outlook
Next 12 months: No increases (maybe possible drop)
2-3 years: Stable, very little increases
4-5 years: Rates likely to rise again by up to 5 per cent

Base on a finance period of 36, 48, 54 or 6o months, you'll save more with a variable rate.

my 2 cents anyway.
Click to expand...

Agreed - add to this that you lose the most money to interest early on in the loan, then Variable is the way to go.
 
Carbon_Fibre said:
Variable all the way. The fixed rate is probably 2 per cent higher.

Interest rate outlook
Next 12 months: No increases (maybe possible drop)
2-3 years: Stable, very little increases
4-5 years: Rates likely to rise again by up to 5 per cent

Base on a finance period of 36, 48, 54 or 6o months, you'll save more with a variable rate.

my 2 cents anyway.
Click to expand...

+1 too early in the interest rate cycle to worry too much about increases in prime and fixing
 
I'd just like to remind people that the interest rate in this country was 24% at one point.
It got there very quickly, and it can easily do it again.
I vote fixed.
 
davemc said:
I'd just like to remind people that the interest rate in this country was 24% at one point.
It got there very quickly, and it can easily do it again.
I vote fixed.
Click to expand...

While it could, it could also *not*.

At the moment, nothing indicates that it will shoot up so drastically. If you're looking at a long-term 10 year loan, fixed might be a good idea, but short-term, variable seems much better.
 
Pitbull said:
Last year this time, variable

Now, Fixed

This is my 2c
Click to expand...

+1

I'm not too sure about the other posters replies as to why they're not expecting an increase in the interest rate. The little financial television I do watch indicates that the new lady in charge would need to push up interest rates in the next few months in order to keep inflation down.

Do these guys even know whats going on in the market these days? *shrug*

However, I would definatly consider a fixed interest rate for now. With 2% above prime usually, this would be the safe bet. You can budget for this better (unless you have 2-3k lying around doing nothing each month, which I would recommend pushing into a saving account when the interest rates do go up) and even though your payment would be a little higher, when the interest rate goes up in the next few months you'll be rest assured that you won't have ballooning car payments which you can't afford and didn't budget for.

My car is on variable. Went up 1.6k in a few months and stayed there for several more. I'm only now back to how it was 3 years ago and having that extra cash on hand is saving my ass. But I fear the interest rate hike will mean I'm in for a rough time.
 
AcidRaZor said:
+1

I'm not too sure about the other posters replies as to why they're not expecting an increase in the interest rate. The little financial television I do watch indicates that the new lady in charge would need to push up interest rates in the next few months in order to keep inflation down.

Do these guys even know whats going on in the market these days? *shrug*

However, I would definatly consider a fixed interest rate for now. With 2% above prime usually, this would be the safe bet. You can budget for this better (unless you have 2-3k lying around doing nothing each month, which I would recommend pushing into a saving account when the interest rates do go up) and even though your payment would be a little higher, when the interest rate goes up in the next few months you'll be rest assured that you won't have ballooning car payments which you can't afford and didn't budget for.

My car is on variable. Went up 1.6k in a few months and stayed there for several more. I'm only now back to how it was 3 years ago and having that extra cash on hand is saving my ass. But I fear the interest rate hike will mean I'm in for a rough time.
Click to expand...

Prime minus 1 variable vs prime plus 2 fixed is a 300 basis points difference. Many economists think that the next few years will be stable interest rate wise - upward pressure yes, but likely within the 3-4% range.

Yes, there is always a risk that it increases suddenly and more than expected (I doubt we will ever see 20%+ again, but possible). So if you feel very risk averse, or your cash flow is extremely tight, fix. Otherwise stay variable. Car finance is relatively short-term and relatively small amounts.

And you can always save your interest gain. With 3% saving atm you will be "in the money" so to speak for quite some time.

I suppose personal preference plays a big role in decisions like this.
 
Carbon_Fibre said:
Variable all the way. The fixed rate is probably 2 per cent higher.

Interest rate outlook
Next 12 months: No increases (maybe possible drop)
2-3 years: Stable, very little increases
4-5 years: Rates likely to rise again by up to 5 per cent

Base on a finance period of 36, 48, 54 or 6o months, you'll save more with a variable rate.

my 2 cents anyway.
Click to expand...

Agree with that too.

Rather pay in the extra 2% that you would have paid on the fixed rate as well.
 
SiriS said:
Prime minus 1 variable vs prime plus 2 fixed is a 300 basis points difference. Many economists think that the next few years will be stable interest rate wise - upward pressure yes, but likely within the 3-4% range.

Yes, there is always a risk that it increases suddenly and more than expected (I doubt we will ever see 20%+ again, but possible). So if you feel very risk averse, or your cash flow is extremely tight, fix. Otherwise stay variable. Car finance is relatively short-term and relatively small amounts.

And you can always save your interest gain. With 3% saving atm you will be "in the money" so to speak for quite some time.

I suppose personal preference plays a big role in decisions like this.
Click to expand...

+1 Good answer. At the end of the day it depends on how averse to risk you are? Taking a fixed rate now is certainly less risky but has a high probability of costing you more in my opinion.
 
Interesting article on the interest rate outlook -

The Economy Five year interest rate outlook

Cees Bruggemans (chief economist FNB) Tue 28 July 09

There has been some speculation in these pages regarding the likely shape of the next cyclical interest rate upswing. First sideways through 2010, thereafter rising gradually through 2013 before peaking.
Click to expand...

Full article

10 economists, 11 answers, 1000 variables... :p
 
AcidRaZor said:
+1

I'm not too sure about the other posters replies as to why they're not expecting an increase in the interest rate. The little financial television I do watch indicates that the new lady in charge would need to push up interest rates in the next few months in order to keep inflation down.

Do these guys even know whats going on in the market these days? *shrug*

However, I would definatly consider a fixed interest rate for now. With 2% above prime usually, this would be the safe bet. You can budget for this better (unless you have 2-3k lying around doing nothing each month, which I would recommend pushing into a saving account when the interest rates do go up) and even though your payment would be a little higher, when the interest rate goes up in the next few months you'll be rest assured that you won't have ballooning car payments which you can't afford and didn't budget for.

My car is on variable. Went up 1.6k in a few months and stayed there for several more. I'm only now back to how it was 3 years ago and having that extra cash on hand is saving my ass. But I fear the interest rate hike will mean I'm in for a rough time.
Click to expand...

If you're buying a car, you might get 3% less interest on variable than on fixed. So pay that extra 3% into the loan every month and save on interest now, while it's still early in the loan. That would squash the amount of interest you HAVE to pay every month. So when the interest does shoot up, you've got a big safety buffer. You'll effectively be several payments in advance, so you have the option to NOT pay more than you'd have paid on fixed anyway.
 
Pyro said:
If you're buying a car, you might get 3% less interest on variable than on fixed. So pay that extra 3% into the loan every month and save on interest now, while it's still early in the loan. That would squash the amount of interest you HAVE to pay every month. So when the interest does shoot up, you've got a big safety buffer. You'll effectively be several payments in advance, so you have the option to NOT pay more than you'd have paid on fixed anyway.
Click to expand...


+1 and should the interest rate not jump up you still save because you paid back sooner, in todays current economic climate the reserve bank cant afford to push up interest rates, as much pressure as there is to keep tabs on inflation, economic growth and avoidance of job losses is vital at this stage, we are going to see rate stability for at least the next 18 months with perhaps even a further of 100 points before the year is up, then another period of stability followed by steady increases to pull back inflation

the cycle continues :D
 
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