Car Finance in South Africa: Complete Guide to Getting Approved

Mobility is one of the key requirements for a successful life, and with a chequered public transport system in South Africa, many of us need to buy a car just to get around. E-hailing services like Uber or Bolt can do a wonderful job of filling in, but for those longer journeys and true freedom, one will want to buy their own car.

Very few people in South Africa can afford to pay for a car outright; most will opt for finance. Here's what you need to know about finance in South Africa and how to improve your chances of getting approved.

What is car finance?

Simply put, car finance is a loan from a bank or financial institution to help you buy a car. They will loan you the money to buy the car, on the condition that you pay them back a small portion of it each month. They retain ownership of the car and allow you to use it while you pay it off. At the end of the term, when you've finished paying it back, they hand the ownership over to you. 

Banks charge you interest on your loan, a small additional amount to pay for the luxury of being able to get the loan. It's a fee they charge you to use their money. The amount of interest that they charge you is based on your risk profile - how likely you are to pay every month until the end of the agreement. A good interest rate is 11.25% (Prime +1) to 12.5%, and a high interest rate is 15% to 18%.

What do I need to apply for finance?

The criteria differ from institution to institution, and it would be advisable to check with the bank or finance house to determine their requirements. For the most part, you will need the following:

• - Copy of your ID document
• - Proof of income
• - 3 months bank statements (6 months if you are self-employed)
• - Proof of residence
• - Be a South African citizen (in some cases)
  
• - A valid driving license
• - Earn a minimum of R7 500 per month

How do I apply for finance?

Whoah! Slow down a little there. Before you dive headfirst into debt, there are a few things you should do.

- Check your finances.

There's no point in applying for car finance if you're unable to afford it. Careful, honest budgeting will quickly tell you how much you can afford to spend on a car each month. But remember to factor in insurance and running costs into that amount. WeBank has a handy online budgeting tool to help you get started. This is the first step; then read here to find out how much you should spend on a car each month.

- What car can I afford?

Once you know how much of your monthly budget you're able to safely spend on a car, you can start calculating what price range you can shop in. Don't worry, this is made a lot easier with our finance calculator. To help you get started, expect to pay R1,000 per month for every R60 000 of the purchase price, when putting down a 10% deposit.

Play around with the numbers and see how expensive a car you should be shopping for. Don't forget to put a realistic interest rate!

- Should I choose a balloon/residual?

Balloon payments are a dangerous slope. With a balloon payment on your finance agreement, your instalments (monthly payments) will be lower, but that's because you're only financing a portion of the cost of the vehicle. The outstanding balance is then due at the end of your term. You have two choices here: either settle the outstanding amount (this will require you to save up beforehand) or refinance the balloon amount. The last option will extend your repayments much longer than you may have wanted. 

We recommend avoiding a balloon payment at all costs.

- Applying for car finance.

Now that you have a better idea of what you're getting into, you can start shopping for your car. Filter the choices on the Buy a Car section of our website to show cars that match your affordability. Click Filters, then select Finance to find cars that fit your monthly budget.

Once you've found the car you want, you will be able to apply through the dealership for your vehicle finance. The F&I consultant (Finance and Insurance) at the dealership will be able to apply to the banks on your behalf once you provide them with the necessary documents. 

You will also be able to apply for vehicle finance yourself in advance (also known as pre-approval). This is easiest if you work through the bank that you have an account with.

How can I improve my chances of getting approved?

Here are a few ways that you can help ensure that you qualify for your car finance.

- Credit Score.

Your financial history is the biggest factor in your chances of being approved for finance. The better your credit score, the more likely you are to get approval. You can check your credit score through services like ClearScore, TransUnion, or Experian. A score of 580 or higher is required for finance, but that alone is not a guarantee. 

Improving your score takes time. To help improve it, ensure that your debt is managed and that accounts are paid on time. A small amount of revolving debt paid each month will help show that you can stick to monthly payments.

- Employment.

The longer you are formally employed, the better it is for your application. If you've only just started at a new company, or your own business hasn't been running long, you may have to wait a few months before you are approved. The finance institution wants to know that you're stable and good with money.

- A larger deposit.

Offering to pay a larger deposit may improve your chances. When you put down a bigger deposit, you're lending less money from the bank, and the risk for them is lower. Save up a little extra, and you'll reap the rewards in the long term, since the interest won't be as high at the end of the term.

And finally

If you can avoid finance altogether, it is recommended. While it may be nice to roll around in a more expensive car, the car that is paid off will always cost you less in the long run.