But first, what is the interest rate? Basically, interest is the price of money. It is how much you will pay to borrow a certain (a debt) amount over a period of time. Typically, interest rates are charged annually, although there are certain questionable "lenders" who charge interest weekly (we will talk about those ones in another post).
So as an example, if Thulani borrows R10 000 from a bank, the bank can charge him up to 20% per year. That means after 1 year, Thulani has to pay the bank R2 000 for the money he borrowed (the debt). It never seems like much, until you realize, Thulani has 6 accounts that he has to pay. On top of that, the National Credit Act, states that the cost of credit i.e. interest, initiation fees, service fees, insurance, all get paid first before the balance goes down (we will deal with this one in another post).
The magic of debt review is the impact on the interest rates. It is important to note, that this is very unique to South Africa and almost always seems too good to be true. The majority of credit providers in South Africa have realized that consumer debt is a crisis. In an effort to lessen the burden, most will consider a reduction in interest rates, to help a consumer pay off their debt in a reasonable amount of time. These concessions can go down to almost 1% per year, which to be fair is a massive concession on the part of the banks.
So what happens when the interest rate changes? Nothing, most of these concessions are fixed so you are never caught off guard by an increase in the interest rate. Remember the interest rate was 3.5% in 2020 and quickly rose to 8.5% in 2024. While the South African Reserve Bank is trying its best to help consumers, for those caught in the interest hikes, house payments on bonds have gone up, vehicle installments have gone but we all know...salary didn't go anywhere really for most people.
So what can Debt Review do, reduce the interest you pay, with lower interest you can pay a lower installment you can afford. The bonus is that, when things get better and you have some extra income, you can always increase your payments and finish paying your debt faster because of the lower interest rate!
Get in touch, if you have a question.