How to buy a car in South Africa with bad credit

How to buy a car in South Africa with bad credit

Chances are good that if you have a bad credit score or have been blacklisted, you will be well aware of it, as purchasing anything on credit will be a major problem for you. The issue only becomes worse as the items you attempt to purchase become more expensive, making the purchasing of a vehicle and property especially difficult as financial institutions are not as willing to take the risk on individuals with little history of successfully paying off debts or indeed, a history of loan defaults.

Related: How to negotiate when buying a car

What leads to a bad credit score?

Those of us with a good or even reasonably good credit score are likely oblivious to the challenges those with bad credit ratings face, but what causes this? There are two main reasons why a person will have a poor credit score, with the first being they have not acquired a history of paying off loans, whether this is because they are still young and have yet to take out lines of credit or the person in question has managed to avoid accumulating a history of loans from financial institutions.

The second reason for a poor credit score is defaulting on loan amounts, where an individual fails to abide by their payment plan with a financial institution, leading to the borrower having to report the individual to the credit bureau. The running theme here is that a financial institution needs proof that an individual has a good probability of being able to pay off a loan amount borrowed to them, and this can only be accomplished by taking out lines of credit, a reason why clothing accounts and other small lines of credit precede the purchasing of a car, which is often followed by the purchasing of property.

How low can you go?

As referenced in our article regarding what credit score is needed for car finance in South Africa, with a credit score of "...300 and 579, your rating is very poor, and you will most likely not be approved for car finance." higher ratings will give you a chance at attaining vehicle finance. These scores mean that when a financial services provider looks at a respective credit report, they can determine whether to grant the loan to a person and, indeed, at which interest rate it should be charged, based on their credit profile.

What does it mean to be blacklisted?

While the term 'blacklisted' is less popular in 2022, it is still used to refer to a person who has been deemed a risk when it comes to credit and will not be granted loans. The risk comes from people who default, are in 'significant arrears', or have legal judgments pending against them for non-payment.  The good news is that newer credit reports don't only list your bad credit but also your good credit, which is why each person is given a score, with the low end being around 300 points and the absolute peak being 850 points. A blacklisted person can clear their name and will be able to build their credit profile again.

What can I do to get finance?

There are two ways in which a person with a poor credit record can attain finance, with the first being by placing a large deposit down on the vehicle with the financial institution as this large capital outlay reduces the risk taken by the finance house while also incentivising the buyer to make good with their payments as they have liquidity in the vehicle. The interest rate may be prohibitively high if the financial institution agrees to offer finance under specific circumstances. The second option for those who are blacklisted is to either buy a cheaper car in cash or approach vehicle dealerships that offer the so-called 'rent-to-own' option for vehicles, allowing for a more flexible payment plan that can be tweaked or cancelled far easier than traditional finance deals.