A car is one of the most expensive assets you will ever buy, and because of this, it needs some way of being paid up over an extended period. The magic of our credit society lets us do that with ease, with all the major banks in partnership with most trusted car dealers in South Africa offering vehicle finance either for a new car or used car. However, before you enter into such a contract there are a few questions to make note of, and we list and help answer them for you here.
- Do I qualify for vehicle finance if I have a bad credit record (blacklisted)?
Car buyers who have bad credit records or are blacklisted are usually shrugged off by the big banks. This being said, you are more likely not to receive vehicle finance if that is the case. However, with a growing market in unsecured lending which is dominated by smaller financial services providers, the are options available for you. Vehicle finance of this sort comes with a lot more criteria. First, you have to make a down payment that is usually about 20% of the value of the car you want to buy. Second, because the financier is taking a huge risk on you, the interest rate you would be required to pay is significantly higher than that of someone with a clean credit rating. Three, the repayment period is often shorter so to make sure you do not default. A shorter repayment period for an asset like a car is always a good option because you ultimately pay less than you would on a longer-term loan. Four, because the big banks usually not offer vehicle finance to blacklisted folk, the dealer you intend to buy your car from might not sell it to you. Five, always be wary of your loan provider because they might be unregistered and fraudulent.
- Does vehicle finance depend on the income I make?
Vehicle finance does depend on the amount of income you earn. Dealers will generally not sell you a car you cannot afford, and banks will not extend any finance to you if you look like you will be overburdened by the loan. But essentially, the more you earn, the more vehicle finance you can acquire for a more expensive car.
- What are the implications if I am self-employed?
Self-employed folk have an added advantage that their business can buy the car as its own asset, of which you would have use of it. The business would have to be in a sound position and the criteria of which is very different from a natural person. For you, unlike other people who are merely required to submit bank statements from the past three months, if you are self-employed you would need audited bank statements of the past three years. Business owners buying bakkies for commercial use of course are in an even better position because you can claim back all of your 14% VAT, and make other deductions on your business use.
- Can I take out vehicle finance in my name for my spouse or dependent(s)?
Vehicle finance cannot be taken in the name of a third party. You are probably married and/or have children when you consider this, but an adult would have to take his or her own financing loan. In the event that you are serious about buying a car for another adult or your child, who is below the age of 18 and/or is not financially independent, then you would have to take out the vehicle finance in your name while the other person enjoys use of the car. But ultimately, you will be responsible your contract’s obligations.
- Is it not better to take out an [outright] loan than opt for vehicle finance?
Vehicle finance is a loan in itself, however it is specific to an automobile unlike a personal loan. A personal loan usually carries higher risk for the bank because they have no asset to repossess should you default on your payments and not find a solution with your banker. Vehicle finance usually caries less interest rates and longer repayment periods. One way to get around this is by re-financing your car. This is what happened in the United States, where people re-financed the finance on their assets like cars and real estate, thus leaving them with more disposable money to spend on personal things because of their now decreased repayment amounts. The downside to this was that those same people soon realized they couldn’t even meet the refinanced amounts, thus the millions of repossessions or foreclosures as they call them that side. Read further to find out more about vehicle refinancing.
- For older model used cars, can I take out vehicle finance over the same period as if buying a new car or even a longer period?
The repayment period of your vehicle finance loan depends on the interest rate and the amount of the loan. If the used car that you buy is quite a cheap car then you will probably be required to pay it over a shorter time frame. It is at your discretion to pay it up before the number of years that the bank expects you to repay the amount. This is a great thing if you want to pay less effective interest on your loan, and bodes well for when you want to trade-in your car as by the time you are ready to buy another car, your previous one would have been fully paid up. Generally, for older vehicle cars whose model/generation has been replaced more than one newer model, then the repayment period will not be stretched beyond five years, unless you refinance your loan.
- Do I need to be insured to qualify for vehicle finance?
Most banks require that you have car insurance before you qualify for vehicle finance. The Big 4 go even further as to require you to have comprehensive car insurance, which covers you on the event of an accident, hijacking or theft, damage to the car caused by natural forces like fire, flooding, etc., and allows you to claim against third parties that are affected. The reason for this is to make sure you are adequately insured so you can recoup your losses by claiming and not repaying a vehicle finance loan yet the car is no longer in existence or has been completely written-off.