The banks or finance houses will charge you interest on the money they loan you.  This interest will be paid off as part of your monthly repayment, while each month part of your payment will also go to reducing the original amount that you borrowed. Generally, you can get loans at a fixed interest – where the interest you pay will be an agreed amount for the duration of the loan period, or one that varies according to something called the Prime Interest Rate.

The Prime Lending Rate – normally referred to by finances houses merely as “Prime” – is fixed by the South African Reserve Bank. This rate fluctuates. Depending on your credit record and provable income, a finance house will typically lend you money on a car repayment scheme at an interest rate of between 10 and 13 %. In other words, “Prime”, or “Prime-plus three”.  Paying a reasonable deposit on a car, and submitting proof that you are more than capable of meeting those monthly repayments on your budget, will usually encourage a finance house to offer you a competitive interest rate on your repayment contract.

This is the most straight forward type of financing. Repayment period options for instalment financing typically range from 12 months to 72 months, or one to six years. The shorter the loan period, the higher your monthly repayments will be. But the longer the instalment period, the more interest you will be paying on the amount borrowed.

This a repayment scheme that allows you to effectively repay a lump sum of money on the loan at the end of the repayment contract, rather than paying a deposit up front. The benefit of a balloon payment is that it allows you buy a car before you have saved up a deposit and still enjoy driving the car immediately. The main immediate benefit is that your monthly payment on a balloon scheme is lower, than if you had simply opted for a straight instalment finance scheme.

Many reputable finance houses recommend avoiding the balloon payment scheme. For example, with a 20 % balloon payment falling due at the end of a 72-month contract, this will mean that after paying your last (more affordable) monthly instalment, you will be due for lump sum of R40 000, if the amount you borrowed was R200 000. In many cases, the only way of raising that amount of money is to sell the car. And cars depreciate considerably in value each year, especially if they are not properly maintained. You may find that your car’s market value at the end of the finance contract may barely cover the cost of that balloon payment. Which means you will be back where you started, after six years and scrimping and scraping to make all those monthly repayments!

You can however consider to re-finance your balloon payment. Click here to apply

Once the car is paid off, the owner should then approach the finance house for the release of the registration certificate, as well as a document stating that the car has been paid for in full. The owner should then take these documents to the nearest (NATIS) traffic authority and have the car’s registration updated, so that the owner is now also the title holder. You cannot legally sell a car unless you are listed as both the owner and the title holder!

An applicant also needs sufficient disposable income to pay off a car loan. Financial institutions usually work on 30% of the applicant’s post-tax income as an upper limit to car loan repayments – if the car for which finance is desired would end up costing more than that every month, the loan is likely to be rejected.

Alternatively, longer term loans can be negotiated, which will have the effect of dropping the monthly loan repayment, albeit at the cost of an increased interest load. It also helps if the loan applicant can put down a substantial deposit before attempting to obtain finance, as that deposit will reduce the total loan amount, lower the risk of a default on the loan, and ultimately result in lower monthly repayments.

In most cases, the financiers will require proof of employment and at least 3 (but in many cases, 6) month’s bank statements as well as corresponding pay slips.

That’s where financial stability would come in handy: if the applicant’s bank statements can prove that they do in fact earn enough (and steadily enough) to qualify, and with a well-managed debt load, the chances of a successful application improves considerably.
There are various factors which influence whether an applicant would be eligible for finance or not. The best bet to indeed qualify for that loan is for the applicant to prove that they’re financially responsible, have the money to spend, and never renege on old debt. And then, suddenly, that shiny new car doesn’t look so unattainable anymore.

It is more advisable to look for a low-mileage, late-model car, slightly upmarket from what you can afford to buy new. For instance, you could get a 3-year-old car with about 60 000 km for less than you’d pay for a basic new car. Demo models are mostly a good option and are readily available at low mileage and have already depreciated – so you get the best of both worlds.

Once you’ve decided what you want and need, click here look at the various FINANCE OPTIONS

Buying a car is a time-consuming exercise. Not only do you have to search for a suitable vehicle, you also have to apply for finance.

Click here to look at the pro’s and cons of buying from a dealer or privately.