There are many factors that will determine whether or not your application for vehicle finance will get approved. Many vehicle buyers might be shown away just for one or two reasons, especially if the economy is not doing so well. To help you be successful in your venture of getting car finance, we’ve gathered some helpful tips.
Keep in mind, that even if you have taken the necessary steps and completed and submitted all the required documents, there is still a chance that your application for vehicle finance will be denied. Banks and financiers are bound by law to ensure that consumers can afford the financial commitments they wish to enter into.
Here are the best practices to follow:
1. Determine your Affordability
You need to know how much you can afford to spend on a car. To calculate this, take your income (after taxes and deductions) and subtract all living expenses such as rent, utilities, food, transport, TV/mobile subscriptions, airtime, etc. The amount you are left with after these deductions is referred to as your disposable income. This is funds that can be used toward luxuries or essential credit.
You can also use AutoTrader’s Finance Calculator to help you with the exercise. From this, you will have a better idea of how much you can afford when searching for your next vehicle whether it be a new or used model on AutoTrader. It will also come in handy when the dealership/bank/financier needs to assess your vehicle finance application for affordability.
2. Settle as many debts as possible
The National Credit Act (NCA) requires the bank/financier to take all credit accounts/facilities of a customer into account. Your credit profile will include overdrafts, credit cards, home loans, personal loans, as well as clothing accounts. If you ensure those monthly payments are done timeously then your credit profile will be impeccable and the bank/financier will see that you’re a trustworthy borrower.
It’s best advised to have as little debt as possible because that frees up funds in your monthly budget. Similarly, close off all accounts once they are paid or lower the total limit for that facility. The fewer credit facilities attached to your name, the better it will be for future finance applications.
3. Save up for a deposit
Being responsible with your finances will not only reflect well on your credit profile but will also ensure your finance application gets approved. Aside from showing the bank/financier that you can budget responsibly, a deposit will also impress them.
While in some cases a deposit is not a necessity, the benefit of it is the amount of credit required is reduced, which then leads to lower monthly repayments, and in turn, improved affordability. The ability to afford the monthly repayments is the biggest driving factor in a vehicle finance application.
4. Extras aren’t optional
When calculating how much you can afford a month on a car you need to consider running costs such as fuel, maintenance, and not forgetting insurance. (Learn everything you need to know about insurance here.) Often, these costs are not considered when thinking of a monthly instalment, but they do need to be included in your budget when submitting your finance application as they will become part of your monthly expenses.
From your disposal income, financiers will only allocate around half or two thirds of your budget to the vehicle instalment in order for you to have funds for the running costs. If your budget allows room for these costs then the chance of your finance getting approved is heightened. Furthermore, if the vehicle you intend on purchasing doesn’t have a service plan or maintenance plan, you would need to consider saving money each month to cover services.
