I'm ready to buy a car, but first – I need to qualify for Vehicle finance
There is a wide range of available car finance in South Africa for you to choose from – almost as many as the vehicle makers and dealers! When it comes to financing your vehicle, the options are endless and this can often can be overwhelming. It’s, therefore, a great idea to start with how much you can afford in monthly repayments and take it from there.
If you plan to use a car loan to finance the purchase of your vehicle, you should be well versed on what options are available to you and what the pros and cons of each option are.
Plan & prepare for your Car finance application
The most effective strategy is to plan and prepare everything in advance. You should be fully prepared for your car finance application before you even go out and start test driving vehicles.
Preparation will help you save both time and money and may ensure you are able to buy the car you want.
1) Boost your Credit score
The first thing which you need to do is obtain a copy of your credit report. You have the right to obtain a free credit report on an annual basis so you should not hesitate to take advantage of this opportunity. Go over the information carefully and watch out for errors and fraudulent activity.
If you find any, you should request to have them fixed immediately. If you find any blemishes like late or missed payments, you should do what it takes to resolve the situation. All of these efforts will help to improve your credit score so that you can secure a lower interest rate on all forms of credit.
2) Calculate affordability for buying a car
The most important thing which you need to decide on is how much you are prepared to spend on a car overall and on a monthly basis. You need to determine your budget range or set a fixed budget for the purchase of the vehicle to ensure you don’t over extend yourself.
You should have a precise idea of the down payment which you are able to make based on available savings. Then you have to calculate what chunk of your monthly income will go towards the repayment of the loan. Use the car finance calculator to calculate how much you will need to borrow.
3) Common mistakes car buyers make
You should watch out for the emotional element associated with buying a car. If you are totally swept off your feet by a vehicle, but it is way over your budget, the dealer may try to give you a deal which seems affordable, but is actually quote costly.
One of the main tricks which dealers use is to offer a larger loan amount over a longer repayment term. That way, the monthly instalments become smaller, but since interest is charged for a longer period of time, the loan becomes very expensive. You should also be careful about upside down loans and secured short-term loans. The vehicle loses value at a faster pace than the pace at which the outstanding loan balance decreases
4) Calculating interest on your Car finance
What seems like a great deal now may actually turn out to be a costly mistake in the coming years. That is why you should plan ahead. You need to calculate the total loan amount precisely based on the down payment and on the term of the loan.
It is certainly easier to place a smaller down payment now and to take out a bigger loan. However, the larger principal amount will make the loan more expensive. In this way, you can end up owing more on your vehicle than its actual value given the high rate of depreciation on new vehicles.
You should use a loan calculation tool like a spreadsheet or a loan calculator to find out exactly what you will pay in the form of interest and what you will pay towards the principal amount every month. This will give you an idea of how much equity you will be gaining in your vehicle as the time passes.
5) Consider using insurance to save on your Car finance
It is possible to secure a lower interest rate on vehicle finance if you have life insurance or disability insurance. This is because lenders take into account the risk of you becoming unable to repay your loan due to death or disability.
When you have insurance, it can be used for paying back your debt. This lowers the risk for the lender and this will result in lower interest. Most lenders do not require that you have insurance, but it is quite helpful to be covered.
6) Compare Vehicle Finance offers
Car loans in South Africa are available not only from car dealers, but from banks, asset finance houses, online lenders and peer to peer lending platforms. The more options you compare the more likely you are to find the best deal. When you compare vehicle loans offered by different lenders, you should pay attention to the interest rate, fees, monthly payments and the total loan cost.
Comparing various car and personal loans and offers will give you better information of the current market. You can use this information as a powerful tool for negotiation with dealers.
7) Repay your Car Finance earlier
You would want your vehicle loan to have a flexible repayment structure so that you can pay it off more quickly if you have the means to do so. You should be able to make additional payments without incurring extra fees. You should watch out for early repayment penalties as well. If you have poor credit you may still be able to apply for a bad credit loan with a lender that deals with blacklisted people.
Read the terms and conditions of the loan very carefully as such charges are not usually explained straightforwardly by dealers and finance providers on your online loan application. Follow these steps to get in the know and ideally obtain one of the best car loans in South Africa without undue stress and hassle!