Car Loans In South Africa; All You Need To Know
Finally getting a car in your name can be exciting and a little tasking, especially if it happens to be your first. Car loans in South Africa are available to ease the financial involvement in the process. With all the moving parts that come with a car loan, figuring out how to pay for your ride can send you for a spin
Throughout this article, we will be looking at how a car loan works and the most efficient companies that offer it. Read tight.
What is a Car loan
The term car loan refers to loans that you obtain from a bank, a dealer or a specific vehicle finance company. Car loans or vehicle financing are designed for people who are unable or unwilling to take on the massive initial expenditure of a car. This allows individuals and families to have a set of wheels that meets their needs or even fulfills their driving dreams!
How does Car loans work
A car loan is used to cover the full cost of the car you want. As soon as that is done, you start repaying the loan in monthly installments. Additional fees, including those for administration and initiation, as well as interest, will also have to be paid.
Depending on the lender you choose, the total cost of a car loan varies. However, the most important thing you should know about secured car loans is that you can lose the car if you don’t pay back the loan according to what you agreed.
What are the interest terms for car loans?
In South Africa, the maximum interest rate on car loans is 27.5%. When you get a car loan from a bank or other financial institution, you also have to pay interest. Interest payments enable lenders to make a profit from giving out loans. There are two types of interests rates involved with secured car loans:
1. Variable interest rate
In this scenario, the interest rate you pay on the loan could go up and down as you repay it. A change in interest rates is caused in this case by South African Reserve Bank activities, which control the prime market rate directly. Variable interest rates can offer you very low rates, but they are not guaranteed since the rate can rise at any time.
2. Fixed interest rate
Fixed interest rates mean that your interest payments will remain the same until you have finished repaying the loan. It is not affected by the prime market rate, and you always know how much you’re supposed to pay. However, if the interest goes down because of the prime market rate, you’ll not be able to benefit from it.
Types of car loans available
1. Secured vehicle finance
This form of credit uses the car you’re purchasing as security. This means, you get lower interest rates because of the lower risk to the lender created by the higher resale value of the car. If you default in repayment of the car loan, the lender will simply repossess the vehicle.
2. Unsecured vehicle finance
This type of loan allows prospective applicants to obtain a loan without security or collateral. This is a more flexible option since you will not be required to buy a car that meets certain conditions. However, since the lender cannot repossess the car if you default, the amount borrowed comes with higher interest rates and stricter requirements.
3. Car lease
The lender will lease a car to you, and you get to use it over a certain period of time while paying “rent”. At the end of the agreement, you can either buy the car at a lower price or return the car.
4. Operating lease
Similar to a car lease, however, a company or commercial organization takes out the lease and makes the repayments.
- Car hire purchase
Here you reduce the balance owed on your car by making fixed monthly repayments over an agreed period. Usually, a deposit is required, and you will own the car at the end of the lease agreement. In commercial hire purchase, the credit is used to finance a business vehicle.
How do I qualify for car finance in South Africa
To qualify for a car loan in South Africa, you must be;
- Be 18 years old or older.
- Prospective applicants must be a permanently employed salaried individual, earning a minimum salary of R6500 pm.
- Have a valid South African drivers licence with no endorsements.
- Be a South African citizen or permanent resident; and.
- Have a good credit history.
In conjunction with the aforementioned pre-requisite, the following documents are also needed during application process;
- A South African ID;
- Proof of income (bank statements or payslips) that is not older than 3 months;
- Proof of address;
- A copy your driver’s license showing the front and the back;
- A minimum monthly income/salary. This varies between lenders, but typically you have to be earning at least R5000; and
If you are eligible for a car loan, you can apply online or at your lender’s office. Additionally, most lenders have websites with additional information about how to apply for secured car loans.
How to Apply for a Car loan in South Africa
The application process can be either tedious or smooth and easy, depending on the financier you eventually decide to go with. Generally, the process includes;
- Filling out an online application of a financier
- The online application will have to go through a pre-approval process
- The seller will then need to accept your online application and perform the necessary technical inspections of the vehicle
- You will provide the necessary documents
- You will then enter into a buyer and seller agreement where you sign a sales agreement or contract
- The financier will complete any remaining steps with you and will pay the seller the amount
- You will then need to do the necessary vehicle licensing and registration (if a dealer does not do it for you)
- You now pay back the financier according to the financing agreement
How much money can you get when you apply for a car loan
- Minimum amount: Generally, the lowest amount you can get is R10 000.
- Maximum amount: Vehicle finance loans can offer as much as R300 000.
Which bank is best for car loans in South Africa
Not all credit providers are reputable and offer car loans in South Africa. Below is an insight on a few efficient car loan providers in South Africa;
Standard bank is a deeply rooted financial service provider. A Car loan from standard bank can provide you with a range of flexible options to help you make your next big move. Whether you plan on buying a brand new car or a used one. Their differentiator is their long term efficiency and commitment to Africa growth.
2. Ned bank
Ned bank is one of South Africa’s four largest banks. Irrespective of the price of your dream car, Ned bank is available to assist you and help you take each step in your auto acquisition with confidence. Ultimately, they are focused on ensuring you get the satisfaction you deserve.
3. Ford credit
Ford is one of Southern Africa’s leading automotive companies. Now, imagine getting a credit service from the auto manufacturer itself. Ford finance offers a wide range of credit options with a target of enabling South Africans to own the car of their dreams.
Another wonderful option of car credit providers. Cars.co.za is a young, tech company which represents a significant portion of motoring related traffic in South Africa. They offer financially worthy prospective car owners the opportunity to take ownership of cars while paying for it installmentally.
5. Hippo finance
Another great option for prospective car owners who barely have enough money to confidently finance an auto purchase. Hippo finance is available to help you find finance options, tailored towards your needs and budget. You don’t need to worry about anything during the process, as they design their services to take on the processes on your behalf.
How to choose the best secured car loan in South Africa
With so many secured car loans to choose from, it may be confusing trying to decide which one is right for you. To make it easy, you should consider the following factors before applying for the loan:
1. Interest rates
Interest rates that are lower make paying back loans more affordable.
2. Other fees
Many fees come with loans. For example, there can be a service fee and an initiation fee. Find out which fees come with every loan because hidden fees can end up costing you.
3. The loan amount
Pick a loan that allows you to borrow as much as you need. At the same time, choose a loan amount that you can afford to repay. This is especially important since you can lose your car if you fail to pay back the loan.
4. The loan term
How long do you have to pay back the car loan? Lenders usually give you up to 7 years. Choosing a longer-term loan means you will pay smaller monthly repayments, but you will also pay higher interest rates. On the other hand, a short loan term charges less interest, but you pay more in monthly instalments.
5. Requirements and other benefits
There are some loans that offer bonuses and have better lending policies. Additionally, it is easier to apply for a loan that doesn’t have strict requirements or complicated application procedures.
Getting a car loan can be a great option especially when you don’t have enough money to instantly complete the purchase. Car loans give you that flexibility and breathing space you need during and after acquisition. Imagine buying a car in your name and paying for it on an installment basis. You get to own and use the car as you pay the price amount in the most convenient means possible. Just awesome.