It’s a big deal to buy a car, especially if you’re buying a car for the very first time. Honestly, with how expensive life is, there should be parades going up and down the street when you’re finally in a place to buy your own set of wheels.
A car loan is the most common way for South Africans to buy cars, which is why part of this exciting adventure includes getting your ducks in a row so that you can apply for finance.
There’s a reason why car loans are so popular. Mainly, it’s because car loans from the bank typically come with a reasonable repayment period of up to 5 or so years and a competitive interest rate that won’t put an insane amount of pressure on you. These factors alone put car loans into the ‘safe’ category when it comes to finance.
But what if you don’t qualify for finance? A lot of people, especially first-time buyers, are worried that their credit score will mean that they can’t get finance.
If you’re worried about having a low or bad credit rating, then let us walk you through it. We’ve even included a few royal tips to make the whole thing easier for you.
How a car loan works
Once you’ve decided on the car you want to buy, and it fits the bank’s requirements (as in, it’s within the mileage and age limits), you can approach the bank and apply for vehicle finance. This usually means filling in a bunch of forms.
What happens next is that the bank checks all your personal and financial info, including your credit rating, and uses this to decide whether you’ll get finance or not.
The deal with your credit rating
Let’s talk about your credit. Whenever you apply for a loan, the provider will want to look at your credit report. Essentially, they want to get an idea of your risk level and a key way to assess this is by knowing what your credit score is.
If your score is under 300, you basically have no credit rating. This is usually when you don’t have any active credit accounts, so there’s no way of knowing if you’ll be a good payer or not. The next level is between 300-579, which is considered ‘poor’ (or bad) and tells lenders that you take out credit but don’t manage your payments well.
After that, there’s a 580-669 score of ‘fair,’ and a 670-739 score of ‘good.’
So, can you get finance with a bad rating?
It’s easy to understand why it would be more difficult to get a loan if you have a bad credit rating, because it says that you’re a high risk… And yet, you might still be able to get car finance even with a bad rating. Essentially, the banks (and a few other types of lenders) could give you a finance plan by taking more than your credit report into account and creating a more rounded idea of you as a payer.
For example, they’ll look at your income vs. your expenses, your recent spending habits, and a few other details. This is how they can create a better picture of how risky it is to lend you money.
What should you do?
Well, the solution is to know what the deal is with your credit report before you apply for anything. A report tells you what your score is and a few insights into why it’s bad. With this kind of info, you can look at the things you need to fix. Like disputing errors on your credit report, paying your bills on time, and lowering the amount of credit you use.
When you’ve worked on your credit rating and upped your score, you can apply.
There are also a few alternatives to the traditional car finance option. For instance, you can look online for lenders who offer special financing for people with bad or no credit history, or get a co-signer, like a family member or trusted friend with good credit to help secure the loan.
Just make sure you read the terms and conditions of these alternative options verrry carefully. At King Price, our pet peeve is when people don’t understand what they’re signing up for. It’s why we put so much effort into taking out all the stiff, complicated language in our insurance docs and use every day, plain English.
A few tips to help you out:
- Check out your credit history before you apply for finance and see what you can fix, because a good credit history will give you better terms.
- Use an online loan calculator to plug in a possible loan amount, interest rate, and loan terms so you can check if you’re able to afford a loan.
- Make sure you have the necessary docs, like your proof of income, ID, and proof of residence.
- Scrutinise the T’s and C’s of the loan offered to you, including loan duration, interest rates, and monthly payments before you accept anything.
The king has your back
Our parting royal tip is to make sure that the king’s got your back. Part of getting car finance is getting comprehensive car insurance, and it doesn’t have to come from the bank or the dealership. You’re absolutely free to find the best cover and premium for your needs, which is, coincidentally, what we’ve got for you!
Yes, we’ve got top-notch, simple cheap car insurance that will be there for you come what may. Click here for a commitment-free quote today or WhatsApp us on 0860 50 50 50 (or call us, because we love a chat).
