Vehicle Finance

Do you qualify for vehicle finance? 

Vehicle finance in South Africa is 100% credit profile dependent. This means that the amount of vehicle finance you’ll qualify for relies on your credit rating, eligibility, and affordability. A good credit rating could see you enjoy interest rates from as low as 8.25% which is the current prime lending rate and up to a maximum of 27.5%. Loan terms vary between 12 and 84 months.

Vehicle finance can be scary if you’ve never obtained it before. Gaining information on the matter can set you at ease and equip you with everything you need to know to make a well-informed decision.

First things first – what is vehicle finance?

Essentially, vehicle finance involves applying for the funding you need to pay for your car. It’s a credit agreement between the borrower and the lender that stipulates an agreed-upon arrangement.

This arrangement contains the finance amount, the repayment term, and the interest and fees that are charged over the finance period. You can then purchase the vehicle and repay it over time instead of paying upfront.

A straightforward approach to applying for vehicle finance

Applying for vehicle finance has become more accessible through online loan applications. You can do the entire application on the lender's website as well as submit all documents required. Many lenders offer an affordability calculator that can give you an estimate of how much financing you could qualify for before you apply.

Once you have a clear indication of your borrowing power you can narrow down the search for a new car. This simplifies the process and saves you a lot of time and possible disappointment when applying.

What’s considered a good credit rating?

When you apply for any form of credit, a credit check is done. This involves looking at your rating on the credit bureau. A good credit rating ranges between 670 and 739. Such a rating indicates that you’ll most likely honour your credit agreement and your financing will be approved.

For a credit rating of 740 to 799, your financing will not only be approved, but you’re also eligible for interest rates that are better than average.

What happens if you have a bad credit record?

There’s no need to worry because there are various lenders in South Africa that cater to people with bad credit. Having a poor credit record generally means that you’ll pay a higher interest rate on your vehicle finance but it does not mean you cannot acquire financing.

Some tips on improving your credit health

There are numerous ways that you can use to improve your overall credit rating. Maintaining a healthy credit record gives you access to financing with better interest rates. It’s also easier to acquire any type of loan if your credit score is good.

1. The first step you can take to improve your credit score is to pay any outstanding debt you have. Your payment habits play a big role in your credit record and paying your debt on time will ensure no bad ratings.
2. Once your accounts have been settled, closing them will have fewer credit accounts attached to your name on the credit bureau. Having too many accounts in your name often indicates a high borrowing tendency and can reflect negatively.
3. Make sure that the information on the credit bureau is a true indication of your situation. If there is a late payment listing that was not paid late, make sure to query it and rectify the mistake.
4. The two main factors that are taken into account when credit is considered are your payment history and your credit ratio. Your credit ratio is calculated by the amount of credit you have available and how much of that you’ve used.

If, for instance, you have access to R30 000 in credit and you’ve used R15 000 your credit ratio is 50%, which causes a negative impact.

The different types of vehicle finance

There’s a wide range of options available when it comes to vehicle finance. Each one has different payment options and repayment terms. Some of the options available are:

Instalment finance – This is the most common method of paying for your car. You can opt to pay a deposit that’ll lower your monthly instalments or borrow the amount without a deposit. The loan term is usually up to 72 months. The repayment amount is calculated with interest and fees over the chosen term. The shorter the loan term, the less interest you pay.

Instalment with a balloon payment – It’s much the same as instalment finance with a balloon payment made at the end of the loan term. Your financing is calculated over a shorter period lowering the interest and leaving a part of the finance amount as a type of deposit that’s payable at the end.

Vehicle leasing – As is implied, this means that you do not own the vehicle. You lease it over an agreed-upon time, and the vehicle is returned at the end of the term. This type of agreement is more affordable and frees you from maintenance costs as that forms part of the agreement.

South Africa’s top 4 vehicle finance providers

1. WesBank – Earning a minimum salary of R7500 per month could make you eligible for vehicle finance from WesBank for a vehicle costing more than R30,000.
2. FNB – If you earn a minimum salary of R6,000 per month, you could enjoy vehicle finance from FNB for a vehicle costing more than R30,000.
3. ABSA – Credit profile dependent, you could enjoy vehicle finance with an interest rate as low as 9,25%. On amounts less than R250,000, they offer you a penalty-free early settlement.
4. Keitzman Auto Finance Solutions – Whether you work for a boss or you’re self-employed, earning a minimum salary of R7,500 per month could make you eligible for vehicle finance from Keitzman.

Who can qualify for vehicle finance?

There are qualifying criteria that indicate who’ll be eligible. Things like affordability, age, credit rating, and employment status are all factors that play an important role when applying for finance.

How important is a deposit and can you still get financing without it?

Some lenders require a deposit when you apply for vehicle finance but most lenders still approve without a deposit. A deposit lowers the total loan amount and reduces your monthly repayments. Many lenders offer a loan calculator that lets you calculate the difference in repayment between a loan with a deposit and a loan without a deposit.

Is using a loan comparison site better than submitting various applications?

Something to keep in mind when applying for vehicle finance is your credit health. Not many people are aware that when you apply for credit, the lender will do a credit check to establish affordability. When you apply for various loans to find the best one, each lender will do a credit check which could reflect negatively on your credit record.

Using a loan comparison site lets you complete a single application listing your requirements and then used to search for multiple finance options. This means that only one credit check is completed and submitted to the various lenders.

What do the supporting documents generally consist of

When you apply for any form of credit, the lender will request documentation as proof of a few things. These documents are used to verify that you can afford the loan and that you are who you say you are amongst other things. These documents can consist of:

• South African ID document/Smart card
• Proof of your current address not older than three months
• The last three month’s bank statements
• Your most recent payslip or employment contract
• A list of your monthly expenses
• A copy of your South African driver’s licence

Understanding some of the jargon

People often get scared when they’re presented with a contract containing jargon they don’t understand. There’s no need to worry because it’s all quite simple. Some of the most commonly used terms are:

• Capital amount – Refers to the initial amount borrowed
• Depreciation – This means that the older the vehicle gets, the less it’ll be worth
• Equity – Your vehicles values minus what you owe on it
• Fixed-rate loan – A loan term that carries the same interest rate throughout the entire loan term
• Term – The agreed-upon period for repaying a loan
• Book value – The value of a second-hand vehicle

Is financing available for a second-hand vehicle?

Almost all lenders in South Africa offer to finance second-hand vehicles. There are certain conditions applied to this finance option that may include the age of the vehicle and the mileage. Many lenders prefer to set the limit at 5 years or a maximum of 10 000 km. This may vary according to the lender’s requirements.

The two main factors to consider

There are many things to consider when you decide to apply for vehicle finance but the two main factors are:

1. The APR/ annual percentage rate
2. The interest rate and the length of the loan term

Many people look at the monthly repayments and consider the deal affordable when in actual fact, it isn’t. A lower monthly instalment does not necessarily mean that you get the best deal. A longer loan term means more interest payable. Comparing different quotes is the best way to find the most suitable deal.

Getting pre-approval on vehicle finance

Pre-approval serves as a guarantee that you’ll get financing for a certain amount before you apply for a loan. This means that you can search for a vehicle that falls within the pre-approved amount and be sure that you’ll get the financing when you apply.

Some of the most common mistakes made when buying a vehicle

Buying your first car can be an exciting venture and rightfully so. However, there are a few things to consider when you’re a first-time buyer. To avoid disappointment and a possible bad experience you should gain all the information you can on what to look out for.

1. Do extensive research on the vehicle you’re looking to buy. It’s good to know if there are any reported problems with a specific make and model of vehicle.
2. Make sure that you live within your means and don’t purchase a car that will put unnecessary strain on your budget.
3. If you’re buying a second-hand vehicle, insist on taking the car for a test drive. Enquire about the service history. Test the vehicle as extensively as possible to avoid any after-sale surprises.
4. When it comes to salesmen you should be wary. Ask all the questions you need like if the car’s been in an accident and if you can have a third party assess the vehicle beforehand.
5. When you opt for financing, use a trusted and well-known lender. Look for a good interest rate and a deal that benefits you. Using a loan comparison site is usually free of charge and gives you good results.
6. Don't be hasty. Do your research well and gain all the information you can to avoid disappointment and possible scams.
7. Before you seal the deal, make sure to check all documentation on the vehicle. If you’re purchasing a second-hand vehicle, ask for a police clearance certificate to establish that the vehicle has not been stolen.

Avoid disappointment by using reputable dealers

There are many car dealerships around South Africa that offer new and used vehicles for sale. Not all of them have a reputation for being trustworthy. Don’t fall victim to scams in search of a cheaper option. Go online and see what other buyers say about the dealer you prepare to buy from. Make sure to check customer reviews and sites like Hellopeter.

Why you should take out insurance on your new vehicle

When you take out vehicle finance in South Africa you’re required to also take out insurance. This insurance will give you the peace of mind that if something happens, your loan will be settled. It’s important to keep the depreciation of the vehicle in mind. For this reason, it’s advisable to enquire about a shortfall facility.

There are many options for insurance. If you decide to take out a loan from a bank you can opt for bank insurance or you can enquire about independent insurance. Make sure that you are adequately insured for anything that could happen. The insurance you choose should be comprehensive and you have to be insured for the full financing term.

Typical waiting period on vehicle finance

Some lenders have managed to speed the process up with innovative technology and advanced programming. The average waiting period ranges from anything between 24 and 48 hours. This includes completing the application, supplying supporting documents, the verification of your information, and the necessary credit checks.

Once the verification process is complete, the application is approved, and the contractual agreement is accepted and signed, the next step is payment.

The takeaway on vehicle finance

Although purchasing your first vehicle can seem like a daunting task, this comprehensive article covers all of the main factors to consider before you start the process.

Planning is always beneficial and the more knowledge you gain on the matter, the better you can plan ahead. Do lots of research and ask all the questions you can think of. Making a list of what to ask can be helpful.

Buying your first car should be exciting. Ensure that you experience the joy of vehicle ownership by gaining all the information you possibly can.