How does financing a car work is a question that many frustrated consumers ask after having their applications to apply for a car declined.
For most consumers getting vehicle finance, through a bank or in house financing, is their only option as hardly anyone has the money to buy a vehicle for cash.
Furthermore, many people don’t even have the money to put down a deposit on a new or used car, so they’re left with no option but to apply for Wesbank vehicle finance or getting cheap car finance through a dealer.
So Exactly How Does Financing a Car Work In South Africa?
These FAQ on how vehicle finance works should answer any questions you have on car finance and help you get new or second hand car finance.
How does financing a car work?
The way vehicle finance works is with any of these 3 options.
1. Installment Sale
The installment sale, is fairly flexible in that you can reduce your installment amount by taking it over a long period (60 months), or by building a balloon payment into the agreement which means making a large payment at the end of the payment period.
However, by paying higher installments and reducing the repayment period, you could save a significant amount of money in interest and finance charges.
You could also buy your vehicle on hire purchase which is different to the installment sale in that ownership of the vehicle only transfers to the buyer once the final payment has been made in terms of the HP agreement.
Under an installment sale, ownership of the vehicle transfers to the buyer upon signing the agreement.
2. Full Maintenance Lease (FML)
Buying your car on a full maintenance lease is similar to renting your vehicle over an agreed term and at an agreed monthly fee.
The big benefit with this method of vehicle finance is that it includes all the maintenance, servicing, parts and wear & tear.
Furthermore, at the end of the period you return the vehicle and can get a new one under the same terms if you wish.
The disadvantages of this type of car financing is that the agreement restricts the mileage, ownership never transfers to you (so you never own the vehicle) and lastly you’ll be penalised heavily if you decide you want out of the contract before it ends.
FML deals can also be done by some in house financing car dealers.
3. Guaranteed Buy Back
If you finance your vehicle through the bank, you can agree on a value that the car can be bought back for at the end of the finance period by the bank.
The disadvantages with this method of vehicle financing are that the finance house will impose strict conditions on mileage and condition of the vehicle, for example.
How do I qualify for car finance in South Africa?
To qualify for car finance in SA you need to comply with the following criteria;
1. You must be 18 years old or older
2. Only SA citizens with permanent residence qualify
3. You need to be able to provide proof of employment and salary
4. You have to be in possession of a valid South African drivers license
5. A good credit history, without any judgements, will also be a requirement to qualify for car finance
How long does it take to get car finance in South Africa?
In some cases you may get pre approved vehicle finance, however it generally takes 1 to 2 days for the finance house, like Wesbank vehicle finance, to give the car dealership an answer.
There could be some issues that need to be resolved which may add on another day or two, so there’s no exact time.
However, for applicants with excellent credit scores and clean credit history, vehicle finance is generally approved quicker than others.
What credit score is needed for vehicle finance in South Africa?
The higher the score on your credit report, the more chance you have of getting vehicle finance approved in South Africa.
As a guide, credit scores from 767 to 999 are considered excellent and if you fall into this range you will have no problem getting vehicle finance.
Scores from 681 to 766 are considered to be good which will also stand you in good stead when it comes to getting your car finance application approved.
Scores in the range of 614 to 680 are favourable, however a credit score below 614 will make it very difficult for you to get approved. You will probably have to look for car dealerships that accept bad credit.
It’s important to do a regular credit score check as it could boost your credit worthiness.
Is it better to finance a car through a bank or dealership?
Getting car finance deals through the dealer is generally the same as getting them done through a bank, however the dealer will be slightly more biased to get the deal approved for you.
Furthermore, dealers that do in house financing cars will often offer lower interest rates for their clients.
Lastly, if your credit history is poor, you may find auto dealerships that finance bad credit although the interest charged may be higher than through a bank.
What does a car dealership need for financing?
One of the main reasons for getting in house financing is that a dealer may overlook a poor credit record and still approve your car finance.
However, you still need to provide personal information like proof of salary, FICA documents as well as credit history.
Whilst it may be easier to get in house car financing, it’s important to know that it may come at a higher cost in terms of interest rates and other charges than it would through a car finance house like Wesbank.
What is a good interest rate for vehicle finance in South Africa?
The average interest rate charged to SA consumers on installment sale agreements, to buy motor vehicles & furniture, is around 11% – SA Reserve Bank (2018).
Which bank is best for car loan?
Some of the best vehicle finance banks in South Africa are;
1. Wesbank vehicle finance ( Wesbank car finance)
2. Standard bank vehicle finance
3. Mercedes benz agility
4. Absa car finance
5. African bank vehicle finance
6. Nedbank vehicle finance (Nedbank car finance)
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