So, you and your significant other own a house together - both your names are on the contract as co-owners, and that's perfectly normal. But what if you decide to buy a car together? Can the car be registered in both your names, or just one? (Also find out how you can buy your first car.)
In this article, we'll explore the intricacies of car registration and co-debtors.
Car registration and co-debtors in South Africa
When it comes to financing a vehicle purchase in South Africa, the National Credit Act allows for a second party to sign as a co-debtor, even if they aren't the primary borrower. However, here's the crucial point to note: the car can only be registered in the name of one party. The term 'co-debtor' implies shared responsibility for loan repayment, but not joint ownership of the vehicle.
Related: What happens if a buyer fails to transfer ownership of a car into their name?
The potential pitfalls of having or being a co-debtor
In cases where one party's financial profile is not strong enough to secure a car loan independently, having a financially stable co-debtor is a common solution. This co-debtor takes on the responsibility of paying all or a portion of the loan amount.
However, this arrangement can lead to potential pitfalls:
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Shared Responsibility: If the financially stable co-debtor runs into financial trouble, the other party, even if they are not currently employed or financially sound, remains legally responsible for the loan repayment. Any default on the payment can significantly impact both parties' credit scores.
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No Guaranteed Interest Rate Benefits: It's essential to understand that having a co-debtor does not guarantee or improve your chances of securing a better interest rate on the car loan. Interest rates are typically determined by individual credit profiles and the lender's policies, not the presence of a co-debtor. (Find out if you can finance a car with bad credit, here.)
Related: What paperwork do you need when you want to buy a car?
Verdict
When considering whether to register a car in both names or have a co-debtor, it's crucial to take note of the potential risks and benefits. While sharing the responsibility for a car loan can be a practical solution, it's important to understand the legal and financial implications, as well as the potential impact on your credit scores. Additionally, don't assume that having a co-debtor will automatically result in a more favourable interest rate – individual creditworthiness remains a significant factor in determining loan terms in South Africa.
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