Can you buy a car without going through a credit check?

By Martin Pretorius

There's no getting away from the fact that cars are expensive. New budget cars can easily cost more than R150 000, and even scraping the bottom of the barrel in the used-car market will often see you handing over more than R50 000 before you can drive away in your new old car. Very few people have that kind of cash lying around, which is why most of us will need to finance our vehicle purchases.

Making a deal with the bank

When you finance a car, you're effectively asking the bank to buy it on your behalf. Generally, banks have no problem to help you out like this, but they need to be sure that you will be able to repay the loan before lending you the money.

To determine this, they not only look at your income level (to make sure that the loan repayments are within your financial reach), but also at your history with such transactions. If the repayments amount to too large a chunk of your income, or you have a history of poor debt management, they're entitled to refuse your finance application.

Checking your credit history

This applies to more than just any previous car loans, and includes historical debts such as home loans, clothing- or furniture store accounts, and even things like telephone bills and monthly debit orders.

The reasoning for this is simple: If you've proven yourself to be good at managing previous loans, the chances are that you'll be good at repaying your car loan as well. To this end, your name will be checked against the various credit bureaus, to see if you've previously reneged on any loans.

How far back do they check?

Financial service providers and credit agencies look back over a period of two years. Any unpaid loans or debts accrued over that timespan will show up on your credit reports. Note that this also includes going into arrears on any account (overdrawing without repayment) such as returned debit orders, and unprescribed debts.

Is it possible to get a loan with bad credit?

Some dealerships advertise that they will grant finance even to blacklisted customers – those who have an adverse credit report due to whatever reason. Tread carefully before signing up for such a loan, as the chances are that the terms of this loan will not be to your advantage. Such a dealer might insist on a hefty deposit up front, and they will definitely impose a highly unfavourable interest rate to this transaction.

If you sign up for such a deal, you will end up paying much more for the car than it would actually be worth, thus locking you into the loan agreement until it's all paid off. These draconian terms are necessary to safeguard the dealer or financial service provider against possible defaults, as such transactions have a much larger rate of non-payment (and thus, risk of financial loss) than more traditional deals.

In short: the chances are that you won't be able to buy a car without going through a credit check, unless you have the cash at hand already, or are willing to settle for overpriced repayments. As always, remember to check the small print.