Many consumers locally want to know if they can get finance for a vehicle before embarking on the quest to find their dream wheels. We take a look at who can get finance and what you will need to do just that.
ByMartin Pretorius
Published: 22 November 2023, 18:50
Estimated Reading Time: 3 minutes
You've qualified!
Very few buyers have the financial reserves to buy a car without resorting to a finance agreement. However, not all buyers are eligible for car finance, and it depends on two main factors: creditworthiness and income. Remember that if you are looking to sell your car, you can do it here!
Related: How to apply for car finance at the dealership
Creditworthiness
At minimum, we believe a R6500 ongoing salary with a good credit record is enough to be considered for car finance. You also need to be over the age of 18. Here's what credit score is needed.
As with any loan, the financiers want to be sure that they're lending money to a dependable client. To this end, the loan applicant is screened according to their credit rating. The credit rating is determined by the applicant's prior credit history: how much they've borrowed in the past, and how dependable the repayments on those loans have been.
Credit ratings are also influenced by other factors, such as the applicant's current debt load, and whether debit orders have been rejected due to insufficient funds. If the applicant already carries too high a debt load in relation to their income, an additional loan is likely to be rejected. Likewise, rejected debit orders point toward poor financial discipline, which will also raise red flags at the financial institution. Where could you finance a car with bad credit though?
Disposable income
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. Could you buy a car with a credit card?
A steady income helps a lot
In most cases, the financiers will require proof of employment and at least 3 (but in many cases, 6) months' bank statements as well as corresponding payslips. That's fine and well for applicants with full-time employment, but self-employed people will have a considerably more difficult job to prove their loan worthiness.
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. It's still not going to be easy for the self-employed, though...
There are various factors that 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.
Foreign influence
Unfortunately, ex-pats are going to have a tough time financing a vehicle purchase locally. Most, if not all, finance houses in SA require a South African driver's license to get the ball rolling. In a few documented cases foreign nationals have been able to finance a vehicle but they have gone through the process of obtaining an SA driver's license or going through the laborious process of getting a Traffic Register number, which requires work permits, long-term Visa's, local bank accounts, etc.
Our system is just not geared towards this type of situation and even after many of the requirements have been met, the finance house can still refuse to extend the loan.
The only two surefire ways of having vehicle ownership are to buy the vehicle with cash outright or obtain an SA driver's license.
Any information herein is not intended nor does it constitute financial, insurance, tax, legal, investment, or other advice. Before making any decision or taking any action regarding these please consult a suitably qualified professional.
For further assistance from AutoTrader, you can check out our other tools here:
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FAQs
Must be a California resident. Must reside within the program's designated counties. Must meet qualifying annual income. Must meet minimum vehicle purchase requirements.
What determines if you can finance a car? ›
To obtain financing, the financial service provider will check your credit report and credit score. If your credit score is high, you'll have a higher likelihood of being approved for a loan and you could secure a lower interest rate on your car financing payments.
What credit score do you need to finance a car? ›
The credit score required and other eligibility factors for buying a car vary by lender and loan terms. Still, you typically need a good credit score of 661 or higher to qualify for an auto loan. About 69% of retail vehicle financing is for borrowers with credit scores of 661 or higher, according to Experian.
Is it hard to get approved for a car loan? ›
If your credit score is below 670, it could be hard to approved for a traditional car loan. If you can wait to buy a car for a few months, work on raising your score. Focus on making on-time payments in full on revolving debt like credit cards.
How do banks verify income for auto loans? ›
If you're applying at a financial institution where your income is regularly deposited, they will most likely have what they need, as well. But it's best to assume that you'll need to back up what you listed for income on your application. Very simply, a tax return or paystub will do the trick.
What would disqualify you from a car loan? ›
Having a high debt-to-income ratio — the amount of debt on credit cards, other loans or a mortgage compared with the amount you're paid — is another possible reason for loan denial. Also, a loan application could be declined for something simple like incorrect or missing information in your application.
How much is a $30,000 car payment for 5 years? ›
Provided the down payment is $5,000, the interest rate is 10%, and the loan length is five years, the monthly payment will be $531.18/month. With a $1,000 down payment and an interest rate of 20% with a five year loan, your monthly payment will be $768.32/month.
What credit score do you need to get 0% interest on a car? ›
Credit score: You might need a credit score of at least 740 to be considered for a 0% APR loan. The minimum credit score depends on the dealership and the car you're interested in purchasing.
Can I buy a car with a 612 credit score? ›
In short, there is no set-in-stone credit score to get a car loan. A poor credit score is not an automatic disqualifier, but it will likely impact your ability to get a loan and a good interest rate.
What is a good credit score to buy a car with no down payment? ›
Your credit score is crucial to determine your eligibility for a no down payment car loan. Most lenders require a FICO credit score of at least 680 before you can qualify. If your credit score falls below 680, improve your credit score before you apply to help you qualify in the future.
Recent data from the Federal Reserve Bank of New York's Survey of Consumer Expectations Credit Access Survey revealed an all-time high in rejections: 14.2 percent of surveyed applicants said they were denied an auto loan in the last 12 months.
How to increase your chances of getting approved for a car loan? ›
Here are tips to improve your chances of getting approved for an auto loan: check your credit card report, improve your credit, pay down debt, shop for different lenders, establish affordability, extra expenses, and save for a deposit.
How fast does a car loan build credit? ›
A lot of new credit can hurt your credit score. While many factors come into play when calculating your FICO credit score, you may start to see your auto loan raise your credit score in as few as 60 to 120 days. But remember, everyone's credit situation is different, so your results may vary.
How many pay stubs do I need for a car? ›
Last two recent pay stubs (if you have more than one job, bring the stubs from those as well) Proof of residency (any current utility bill should do, such as water or electric) List of references (not including anyone living in your household)
When buying a car, do they look at your bank account? ›
Lenders may also request recent bank statements as part of their approval process. A lack of a bank account could lead to some lenders denying you financing. Even in cases where you're able to get approved, you may pay a higher interest rate on that loan.
What loans Cannot verify income? ›
Only a few lenders, like Upgrade and Universal Credit, offer unsecured loans for a single borrower with no income verification. Secured loan lenders, car title loan lenders, and pawnshops may issue loans without considering your income or credit.
Can you be denied car finance? ›
Borrowers may be denied for vehicle financing due to errors in the application, bad or limited credit or a large amount of debt. The first step following auto loan rejection is to contact the lender to request the specific reasons for the denial.
How do you tell if you will be approved for a car loan? ›
Your credit score is a major factor in whether you'll be approved for a car loan. Some lenders use specialized credit scores, such as a FICO Auto Score. In general, you'll need at least prime credit, meaning a credit score of 661 or up, to get a loan at a good interest rate.
What is the rule of thumb for car financing? ›
As a general rule of thumb, many experts suggest following the 20/4/10 rule, which holds that you should set aside 20% of a car's purchase price for a downpayment, take 4 years to repay your car loan, and ensure that your monthly transportation costs don't exceed 10% of your monthly income.
What 3 factors determine the monthly payment on an automobile loan? ›
Three major factors that determine your monthly car loan payment are your loan amount, the interest rate and the loan term.
