Getting car finance - how to maximize your chances
Recently car finance has been in the news with at least three companies namely Renault, Nissan and Fiat targeting first-time buyers with special schemes that make it easy to own a car. But what about the rest of the potential car buyers out there? What’s the best way of ensuring that you are approved for car finance?
While it is true that the majority of new or used car transactions are done through financed instalment repayments, rather than cash, getting approval for car finance can be no easy matter. Here are some tips on how to make yourself as “credit-worthy” as possible.
1. Establish how much disposable income you have each month that could be used for a car repayment.
If you are considering applying for finance for a new or used car, the first step is to be realistic about the car you can afford. Banks will ask for details of your monthly income and expenses, so you may as well start the process before you even apply for finance.
The assessment should include all your regular monthly expenses, and these can be more plentiful than you realise. WesBank offers a very useful budgeting tool in this regard called the “Online Budgeting Tool”, which is available to use online.
At the top of this table is a place to list your monthly income after deductions. After that you have to list the following expenses that may apply to you: Bond/rent, utilities such as water and electricity, levies if you own property in a complex, home maintenance, clothing accounts, credit card payments, domestic worker wages, Internet and cell-phone costs, education costs, furniture repayments, food costs, personal loan repayment costs.
Many, but possibly not all these costs will apply to you. It is quite sobering to add them all up and to discover that what is left of your salary amounts to your potential disposable income.
2. Allocate between half and two-thirds of this disposable income as the maximum for a car repayment
Reputable finance houses recommend that you allocate only half of your budget for monthly repayment. This is to give you a cushion amount to pay for compulsory insurance on a vehicle loan and to be able to afford fuel costs and money for the maintenance of the car. As an example, if you have calculated a sum of R5 000 per month for your transport costs, you should aim for a maximum monthly repayment of R2 500 a month.
Make calculating vehicle repayments easier for yourself by using the AutoTrader Car Finance Calculator.
3. Assemble all the documentation you will need to prove your monthly income and expenses
Obviously, you will need proof of salary or income via bank statements, and other documentation proving that you are a good credit risk with regular payments of all your commitments.
4. Close paid-up accounts and settle short-term loans that aren’t absolutely essential
The lower your fixed monthly payments are, the more “fat” you will have in your monthly budget to enable paying off a car loan. Having proof of loans and accounts that are paid up look really good on your credit record.
5. Save up for a deposit
The way to really impress a loan officer at a bank is to offer proof that you have the ability to save money. Being able to put down a substantial deposit on a new or used car is one way to gain confidence that you are a credit-worthy client.
6. Having a paid-up car as a trade-in is a big plus factor
If you have a car that is paid up, or you have paid off enough of the car to the point where the trade-in value exceeds what you owe on your car, you can use this as a trade-in. This lowers the overall amount of the loan for the car, and also lowers the risk for the bank or finance house, of getting their money back should you suffer misfortune and not be able to continue making the repayments.
To get an accurate valuation of your vehicle to compare with the outstanding loan amount, why not visit the AutoTrader Car Valuation page. If you are considering selling your vehicle to contribute to the deposit of your next vehicle, why not sell your car on AutoTrader.
7. Be realistic. And consider a good used vehicle over a new one
We all know the cars we want! The Porsches, the Ferraris, the GTIs, the WRXs. But if your budget means that you have to settle for less, this is much better than landing in financial hot water further down the line. It’s also a good idea to peruse AutoTrader, which lists over 70 000 used vehicles. If you do your research and buy a used car sensibly, you could well be heading for that tantalising GTI territory sooner than you thought possible!
