The majority of South Africans cannot afford to pay for a vehicle in cash.
This is why they opt for alternatives such as vehicle financing to help them achieve their dream of buying a car.
However, vehicle financing comes with terms and conditions as well as a set of requirements you need to meet before they consider you for the finance boost.
The first requirement lenders look out for is a credit score, which is an important aspect for getting any credit boost.
This is because it’s a long term arrangement, and a lender needs to know the likelihood of you paying your instalments each month.
So, to get pre-selected for your vehicle finance, the lender will need to check your credit report.
This is where it can get tricky as some people have a low or bad credit score.
If that’s where you are with your credit report, the lender may be sceptical about giving you vehicle finance.
Or you may get a high-interest rate.
But, there are other ways to get vehicle financing with a low credit score.
And, in this article below, we’ll discuss just how you can do that.
Check your credit score
Before assuming you have a bad credit score, you need to check it first.
There are a number of ways you can see your credit score in South Africa; many websites even show you your history which will give you an idea of what type of payer you were in the past.
Before you panic about having a low score, you might want to take a moment to thoroughly assess your report.
You never know; there might be incorrect information that you can dispute.
Incorrect information or any fraudulent activity under your name can affect your credit score, and without reviewing your report, you might overlook the one reason you have a bad credit rating.
If there are any issues, you’ll need to dispute it before you go to the lender.
Improve your credit score
If you have a low credit score, you can always improve it.
Your report is not set in stone, and with the right financial habits, you can improve your score and be able to buy a second-hand car or a new one, depending on your needs.
While it won’t change in a day, all your improvements will appear on your score report.
To improve your report, you need to:
- Pay your bills on time from now on. Missing a payment has a huge impact on your score, and it shows lenders that you aren’t reliable.
- Pay more than the minimum amount if you cannot settle the balance. This shows lenders that you aren’t financially dependent on your credit.
- Settle small store and credit card balances if you can. That will help you improve your credit utilisation, which is the amount of credit you have used compared to your overall credit available.
- Avoid applying for credit too frequently as it shows you’re desperate.
- Build up a track record of being a good payer.
While this won’t change overnight, it will put you on the right track of repairing your credit so that you’re more likely to get your loan once you apply for vehicle finance.
Save up for a deposit
Saving up for a deposit may be an effective way to get lenders to consider you for financing.
Of course, it’s not compulsory for you to have a deposit when searching for a vehicle, but it can help show lenders that you can be trustworthy.
The fact that you put money away for the deposit will show lenders how serious you are and that you are willing to stick to an arrangement.
This puts you in a strong position to get approval and will allow you to have a better interest rate.
You can use vehicle finance calculators on lenders’ car finance apps, and it will show you how much you’ll need to pay back after your deposit.
And, it will show you how much interest you’ll have to pay, which works out better as your deposit can go towards that.
While these calculations are just a guideline, they can help you get an idea of how much you will need to pay should you get pre-selected.
Determine your affordability
Before you try and get vehicle finance, it’s beneficial for you to check your affordability.
Your affordability is also what lenders will look at when they determine whether or not you can afford a vehicle right now.
So, make sure you take a look at your finances and calculate the total cost of owning a car and whether you can afford it.
The cost includes petrol, maintenance and car insurance.
Lenders will take that into consideration as well as your fixed monthly expenses, and will determine if you are creditworthy.
Since you have a low score, it’s best to ensure that your affordability shows that you can afford the vehicle.
Also, ensure that you don’t stretch your loan term over a longer period of months.
Because you’re a high-risk borrower and the lender might give you higher interest if you’ve been selected, you’ll end up spending far too many months paying back as the length of your loan will also add to the interest.
Consider getting a cosigner
Having a cosigner or your vehicle finance is another effective way to get pre-selected for financing, especially one with a great credit score.
It can also help you get a better interest rate and loan terms.
However, when you get a cosigner, you’re arranging that if you don’t meet your monthly arrangements, they will pay off the loan.
Because of this reason, many people don’t want to be cosigners as they fear they will be left with repaying the debt you took out or be left with a bad credit score.
You would need to find someone who trusts you enough to take the risk.
Final thoughts
It’s very important to have a good credit score as it makes your life easier.
While you may have a bad one now, you can still work toward repairing it for your future self.
Credit is a part of our lives and can help improve your life, but you need to be very careful with how you spend it.
While these tips may seem like a lot of work, it’s possible with careful planning and discipline.
Once you set your mind to it and continue to make payments, use your credit less and check your credit score, you’ll have a good credit score in no time.
Remember that, if you don’t get pre-selected now for financing or the interest is too high, it is okay to wait.
Waiting till your score improves will help you get a much more affordable deal that will ensure your new vehicle doesn’t feel like a financial burden.
Anchor texts:
1.) car finance app
2.) apply for vehicle finance
3.) requirements for vehicle finance
Link/s: Wesbank
Website: WesBank
