In South Africa, the public transport system is highly unreliable hence the need for owning a personal Car by everyday commuters. Outrightly purchasing a car in South Africa with the current economic realities is not a walk in the park.
An outright purchase of either a brand new or used car gulps up a lot of money that most South Africans cannot afford.
A lot of South Africans are considering car finance but a constant question on their lips is how does car finance work in South Africa?
Hang on as we navigate answers to this important question and explore how car finance can work for you as a citizen of South Africa.
What Is Car Finance?
Car finance is a unique loan that is accessed either from a car merchant, a car finance corporation, or a bank that enables you to make payment for a car purchase in installments over an appointed timeline.
Car finance is a popular possibility that a lot of South Africans consider when and if they cannot afford an outright car purchase. Car finance seeks to reduce the heavy financial demands of an outright car purchase.
How Car Finance Works In South Africa
If you choose to approach a financial institution or a car merchant for car finance in South Africa, you will be required to pass through certain procedures to obtain car finance:
1. Credit Check
When you apply for car finance, your financial institution also known as your bank will conduct a credit check on you.
You must be aged 18 or older and have a decent credit score to qualify for car finance. You can ascertain your credit score with any of the several credit bureaus in South Africa before applying for car finance.
2. Evaluate A Monthly Affordable Price Range
Your financial institution will assist you by calculating your monthly affordable price range.
Your monthly affordable price range simply refers to the amount you can pay monthly to offset your car finance.
You also have the option of calculating it yourself even before applying for car finance.
3. Apply For Car Finance
A credible driver’s license, Valid ID card, and recent bank statements are the required documents to apply for car finance.
Application for car finance can be done on the official website of your chosen financial institution in South Africa or via your chosen car merchant.
4. Construct Your Car Finance Plan
Upon the approval of your car finance application, you will be provided with an interim agreement by your preferred financial institution.
This finance contract will clearly state your monthly payments, your interest rate, and the duration of the contract.
The National Credit Act(NCA) in South Africa authorizes you to construct your agreement by choosing its duration, your payment option, and interest tariff.
A regular finance contract duration ranges between 12 and 72 months. Short duration equals greater monthly installments and vice versa.
5. Invest In A Loan Insurance
You are required to put insurance in place to handle your loan payment in the event of a payment default to obtain a car finance approval.
This indemnifies you and your financial institution.
6. Purchase A Car Insurance
You will be strongly required to provide proof of insurance purchase on the car you are acquiring by your car finance provider.
You could opt for your credit provider’s insurance company or your preferred insurance company. Meticulous insurance is mandatory for any car owner in South Africa.
Your car insurance protects you from debt in the event of car theft, hijacking, and accident.
Organizations That Provides Car Finance In South Africa
There are two major organizations you can approach to seek car financing in South Africa:
1. Financial institutions.
2. Car merchants.
Banks are also referred to as financial institutions. You are expected to procure a loan pre-approval document that incorporates a citation and a letter of dedication to access car finance through a financial institution.
You then present the loan pre-approval document to a car dealer and then scout for a car that is within the price spectrum that you can pay for.
Financial Institutions give car finance interest rates that are referred to as the “true interest rate”. The True interest rate of a brand new car is distinct from that of a used car.
Brand new cars are normally eligible for a lesser true interest rate.
After the car selection, your chosen car merchant then sends your credit application to a specified list of authorized car finance companies.
Your choice car dealer assists you in arranging for the best car finance interest tariff and then takes up the balance as the fee for conducting the finance application.
However, gigantic car merchants in South Africa frequently offer in-house financing that requires you to buy from them and also get funded by them.
Prospect shoppers with low credit scores are often targeted for the in-house financing proposal. It is worthy to note that it is more expensive to get car finance from car merchants when compared to financial institutions.
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Car finance is a choice that should be considered by anyone who desires to own a car but does not have the financial capacity to make an outright car purchase.
However, buying less than you can afford is a smart decision when making a car choice for car financing.
You would agree with me that it is essential for individuals seeking car finance to perfectly understand how car finance works in South Africa, as it would inform their decisions.