With the soaring prices of new motor vehicles in South Africa, most purchases are financed by banks or dedicated lending institutions. To ensure you can afford the monthly repayments, the finance house will do a credit check before approving your finance. This is a prerequisite and, unless you are prepared to pay the full amount in cash, a necessary step in the process.
Related: What credit score is needed for car finance in South Africa
Younger buyers, or first-time buyers, may find that they do not meet the minimum requirements to receive approval for their finance application, be it due to limited credit history or too short a period of stable, permanent employment. In such cases, you may be able to better your chances of approval by having a guarantor sign surety for you.
A guarantor is someone who can take over the debt repayments should you no longer be able to afford them. This will prevent you from defaulting on your repayments, which would force you into debt counselling or have the finance house repossess your car.
Surety is the promise that another individual (the guarantor) will pay either the outstanding amount or the monthly repayments. Some financial institutions may request that you have a guarantor sign surety on an agreement where they feel that you do not qualify for finance, while in some cases you may request this as part of your application to aid in approval. To find out what credit score is required to qualify for vehicle finance, click here.
The guarantor will also be subjected to a credit check as part of the NCA (National Credit Act) law, and they will need to be in a respectable enough standing to qualify as a guarantor for your agreement. This person can be a relative, a friend, or a qualifying business associate. The agreement will need to be co-signed by the guarantor as well as yourself.
Credit insurance (available through insurance companies) ensures that, if the vehicle is stolen and not recovered, or written off because of an accident, the amount owed to the bank is paid in full. This settlement will keep you from becoming stuck with car repayments for a vehicle that you can no longer drive or is no longer in your possession.
