There are few things in life more exciting than buying a car. In the same breath, few things can induce more anxiety than it. The question of whether or not you'll qualify is the most daunting and here we share a few tips to ensure success when applying for a vehicle loan.
A vehicle is a major purchase and banks will scrutinize the credibility of a candidate before finally giving the nod of approval. Whether it’s a house, credit card or a new vehicle, banks are bound by law, through the National Credit Act (NCA), to ensure that consumers can afford the financial commitments into which they enter. Many people aren't really clued up on where they stand with the bureaus, with many not having a record at all, some having a 'thin record,' and some working on fixing their bad record. To improve your chances of winning when buying a car, the following advice is for you.
1. Establish your affordability - To do this, simply subtract your expenses from your total income and see how much you are left with. The amount left over is known as your disposable income and should be enough to cover the vehicle instalment, insurance, fuel and other costs involved in owning a vehicle.
2. These extras aren't optional - Comprehensive insurance cover and fuel are ongoing costs associated with owning a vehicle and shouldn't be regarded as optional. Half to two-thirds of your disposable income should be reserved for the instalment and the rest, for the "extras". For example, if your disposable income amounts to R5000, between R2 500 and R3 000 should be used for the instalment repayment, with the remainder going towards fuel, insurance and maintenance costs.
3. Save up for a deposit - Proving to the banks that you are financially responsible enough to save up a substantial amount will definitely work in your favour. In addition, a deposit helps lower your monthly instalment and so, increases your affordability. Banks want to be sure that you will be able to pay your instalment monthly before approving your loan so, take advantage of any factors that increase their confidence.
4. Settle as many debts as possible - When applying for credit, the bank takes all your current and available credit into account. For example, if you have a personal loan that you have been paying off for two years, with a balance of R15 000 and instalments of R1 000, these figures are used in assessing your affordability.
If you have credit facilities such as a credit card with a limit of R50 000 and an overdraft with a limit of R25 000, these amounts are also included in the assessment – whether they are fully used or have a zero balance. These facilities remain in place even after your vehicle finance has been approved and if you do use them then your monthly affordability has to include their repayments. The best advice here is to have as little debt as possible, which frees up money in your monthly budget.
5. Trade-in - If you've had your current vehicle for more than four years, chances are that its trade-in value will be more than the money you still owe the bank. This means you’ve passed the breakeven point for your vehicle loan. It also means that the money you make from trading in your car can be used as a deposit towards your new vehicle purchase.
Taking the above into consideration, it is also important to be patient and search for the greatest deal. The market is competitive and in the current economic climate, the interest rates are relatively low and this is great news if you're on the market. Keep an eye out for our monthly deals on quality vehicles from the most reputable brands. Our vehicle finance calculator helps estimate an instalment for you, *based on a standard interest that may vary because of the factors mentioned above. Visit https://kelston.co.za/pre-owned-vehicles and window-shop for high-quality vehicle deals that won't break your bank.
