Getting a car loan if you have a bad credit score in South Africa can be challenging, but it’s not impossible. We live in tough economic times, and South Africans are among the most indebted people in the world. You’re not alone, if you’re facing a tough financial situation or your credit score is concerning. With the right approach and knowledge, you can improve your chances of getting approved for vehicle finance.
Understanding bad credit in South Africa
What is your credit score?
Your credit score is a numerical representation of your creditworthiness. Your credit score is a number that ranges between 0 and 999. The higher your credit score, the higher your financial health is seen to be by credit bureaus. Your credit score is calculated by credit bureaus using information like your payment history, credit utilisation, length of credit history, types of credit used, and recent credit inquiries. In South Africa, a score of 650 or above is generally considered good.
What is considered bad credit?
In South Africa, your credit score plays an important role in determining your creditworthiness.
A credit score below 600 is generally regarded as poor or bad credit. If you’re in debt and battling to keep up with your repayments, or you use more than 30% of your available credit, this can affect your credit score quite seriously. If you’ve had a judgment made against you for non-payment, or you’re consistently late in paying off your debts, your credit score will be affected. A low credit score can significantly affect your loan eligibility, making it more difficult to secure financing for a car.
Can you get a car loan with bad credit in South Africa?
Yes, it is possible to get a car loan with bad credit in South Africa. The process may be more challenging than it is for people with good credit records. Lenders assess your creditworthiness to determine whether you qualify for a loan and at what interest rate. With bad credit, you may face higher interest rates or stricter terms.
Strategies to improve your chances
1. Save for a larger deposit
One of the most effective ways to increase your chances of approval is to save for a substantial deposit. A larger down payment reduces the loan amount, demonstrating your financial commitment to potential lenders. Taking this approach can also help to offset your lender’s risk that they take.
2. Shop around for lenders
Different lenders have different criteria for loan approval. Don’t limit yourself to traditional banks. Explore your options with alternative lenders or dealerships that specialise in bad credit car loans. Make sure you do your research well, and go with a reputable, established lender who has a good track record.
3. Opt for a more affordable vehicle
Choosing a less expensive car can increase your approval chances. Lenders may be more willing to finance a lower amount, even if you have bad credit. Doing this means you’ll also be making a financially responsible decision, as you’ll be able to comfortably manage your repayments.
4. Negotiate your loan terms
Be open to discussing your loan terms with potential lenders. You might be able to negotiate a longer repayment period or other conditions that make the loan more manageable for you. It may not always be possible, but you can always try to negotiate your loan terms towards making them more affordable.
5. Improve your credit score
If you can, work on improving your credit score before applying for a car loan. Work towards paying off your existing debts, ensuring all your bills are paid on time, and correcting any errors on your credit report.
6. Consider your options
If you can afford to wait a while before committing to financing a new vehicle, then do so. If you can give yourself some time to pay off your debt, work on improving your credit score, and save for a larger deposit, you’ll give yourself a stronger start in your journey towards becoming a car owner.
Precautions and Considerations
When looking for a car loan with bad credit, you need to be aware of potential problems:
- Beware of predatory lenders: Some lenders may try to take advantage of your situation by enforcing extremely high interest rates. Always read the fine print and understand the total cost of your loan.
- Assess your budget carefully: Ensure that you can afford the repayments over the entire loan term. Consider using a car loan calculator to estimate your monthly payments.
- Consider total ownership costs: Owning a car involves more than just loan repayments. Factor in insurance, maintenance, and fuel costs when budgeting for your vehicle.
Protect Your Investment
Once you secure a car loan, it’s wise to protect your investment. Beyond a Comprehensive Insurance policy, there are other ways you can further protect your car. Consider adding Shortfall Protection to your insurance portfolio, as this helps you cover the shortfall between your insurance payout and the amount you still owe your finance company if your car is written off or stolen. Bidvest Insurance’s Motor Warranty can also give you peace of mind and the right kind of financial protection against unexpected mechanical failures. And, for those unsightly dings and dents, Scratch and Dent Insurance can help you keep your car in tip-top condition, preserving its resale value and keeping it looking good, every kilometre you drive it. The more you cover your car and protect your investment, you’re protecting your credit score too. When you don’t have to go into debt to handle any mechanical mishaps or unexpected circumstances, you’ll be better equipped to build and protect your credit score.
While getting a car loan with bad credit in South Africa may be difficult, it’s not impossible. Patience and persistence are key in this process. Knowing what you do now, you can start exploring value-added insurance options that complement your car ownership journey. Bidvest Insurance offers a range of products tailored to South African consumers.
