Very few buyers have the financial reserves to buy a car without resorting to a finance agreement. However, not all buyers are eligible for car finance, and it depends on two main factors: creditworthiness and income.
As with any loan, the financiers want to be sure that they’re lending money to a dependable client. To this end, the loan applicant is screened according to their credit rating. The credit rating is determined by the applicant’s prior credit history: how much they’ve borrowed in the past, and how dependably the repayments on those loans have been.
Credit ratings are also influenced by other factors, such as the applicant’s current debt load, and whether debit orders have been rejected due to insufficient funds. If the applicant already carries too high a debt load in relation to their income, an additional loan is likely to be rejected. Likewise, rejected debit orders point towards poor financial discipline, which will also raise red flags at the financial institution.
An applicant also needs sufficient disposable income to pay off a car loan. Financial institutions usually work on 30% of the applicant’s post-tax income as an upper limit to car loan repayments – if the car for which finance is desired would end up costing more than that every month, the loan is likely to be rejected.
Alternatively, longer term loans can be negotiated, which will have the effect of dropping the monthly loan repayment, albeit at the cost of an increased interest load. It also helps if the loan applicant can put down a substantial deposit before attempting to obtain finance, as that deposit will reduce the total loan amount, lower the risk of a default on the loan, and ultimately result in lower monthly repayments.
A steady income helps a lot
In most cases, the financiers will require proof of employment and at least 3 (but in many cases, 6) month’s bank statements as well as corresponding payslips. That’s fine and well for applicants with full-time employment, but self-employed people will have a considerably more difficult job to prove their loan-worthiness.
That’s where financial stability would come in handy: if the applicant’s bank statements can prove that they do in fact earn enough (and steadily enough) to qualify, and with a well-managed debt load, the chances of a successful application improves considerably. It’s still not going to be easy for the self-employed, though…
There are various factors which influence whether an applicant would be eligible for finance or not. The best bet to indeed qualify for that loan is for the applicant to prove that they’re financially responsible, have the money to spend, and never renege on old debt. And then, suddenly, that shiny new car doesn’t look so unattainable anymore.
Steps To Finance Your Car
1. Be ready for a credit check
To get financing on any vehicle, you need to be over 18* and have a good credit record.
If you don’t know your credit status, it’s best to confirm it with the credit bureau before applying for finance.
*If you’re not an SA citizen, you’ll also need a valid passport and a bank account with us.
2. Work out what you can afford
Confirm how much you can spend after expenses every month, see your ideal price range and know what the repayments would be over the loan period you choose.
Calculate your affordability and monthly repayments or start your application online.
3. Pick your finance plan
You can either keep your car on your final instalment, or return it at the end of your lease. Know the benefits that come with each plan before you decide.
4. Get your car loan pre-approved
This lets dealers know your credit’s good and you qualify for a car loan up to a specific amount.
It also means you won’t need to stress about the interest rate and terms when you’re negotiating on price.
5. Find your car
Before visiting any dealerships, do some online research on the car you want to buy, and how much it will cost to insure it.
Know what price the dealers have paid. And if you have a car to trade in, find out its market price in advance.
For bargains on pre-owned cars, you could start your search with us.
6. Apply for your car loan
Once you’re happy with the price of your car, you can apply for the car loan you want.
7. Insure your car
The dealer will need proof that you’re insured before you can collect your car.
If you need help finding affordable cover, we can get you up to five competitive online quotes from some of SA’s leading insurance providers.