This post was published on Jan 10, 2025
Cars have become so expensive, forcing many South Africans to finance their vehicles via financial institutions. There are several important steps involved with financing a car and they, are outlined below:
The importance of healthy credit score
Financial institutions place significant importance on your credit rating, which is an assessment by a credit agency on your ability and willingness to meet financial obligations on time and in full. It also assesses your likelihood of defaulting on instalments. Credit bureaus track your payment history monthly, using a point-based system, and share this information with lenders to help them assess the risk of lending to you. When applying for car financing, financial institutions review your credit history before making a financing decision. A good credit score is generally considered to be between 681 and 766 and having a healthy credit score improves your chances of financing approval.
The Application Process
A good credit score is the first requirement, then the next step is identifying a car you are interested in, do your research, check if you will be able to afford the repayment, insurance and service of the car. It is also advisable to test drive the car before deciding to buy it. After you’re happy and are ready, the next step is completing a finance application. In South Africa, most reputable car dealerships have relationships with financial institutions that offer financing. The approved dealerships will help guide you through the application process and some even completing applications on your behalf. When you apply, you will need to submit a few documents, and some will be provided by the financier or dealership. These usually include:
Proof of Residence:
Financial institutions require proof of residency, such as utility bills or any document that shows your residential address. This ensures that you are a resident of South Africa, as financing is only extended to citizens and permanent residents.
Driver’s License:
To qualify for car financing, you need to have a valid driver’s license.
Proof of Income:
One of the most essential requirements for obtaining car finance is proof of income. Finance institutions need to verify that you have a stable source of income and will be able to afford the loan repayments.
Sales Agreement:
After the application is approved and the deal is finalised, you will receive a sales agreement, also known as proof of purchase.
Proof of Insurance:
After a successful purchase and once all the above requirements have been met, the financial institution will require proof of insurance before the car dealer can release the car from the showroom floor. iWYZE, makes this process easy by offering quick online quotes to get cover.
Considering the Costs
When completing the application, it’s equally important to carefully consider the costs involved in the financing agreement. Be sure to factor in monthly payments, interest rates, and any additional fees or insurance. Vehicle finance agreements in South Africa have an average interest rate of 11.75% on the financed amount. This rate varies based on your credit profile, and in some cases, financing may be at a higher interest rate. In addition to this, banks offer a fixed interest rate, which ensures that your instalment remains the same for the duration of the contract, while on the other hand there are variable interest rates which purely focus on the fluctuation of instalments based on market forces.
Conclusion:
Purchasing a new car in South Africa requires careful attention to both the documentation and financial considerations involved, especially when financing the purchase. Key documents such as proof of residence, a valid driver’s license, proof of income, a sales agreement, and proof of insurance are essential in ensuring a smooth financing process. A healthy credit score is critical for securing a favourable loan, and it’s important to be aware of the associated costs, including monthly payments, interest rates, and additional fees. By preparing the necessary paperwork and understanding the financial implications, you can make an informed decision and successfully navigate the car-buying process.
