So you are just about buying your own private car- either a brand new or used car, but you don’t have the cash to pay the entire cost of the car all at once. Now, you are stuck wondering how I would ever own my car in South Africa since I can’t pay for it once and for all. Not to worry, an auto loan is your next best option. Probably you have heard about auto-loan before, and you are wondering how it works in South Africa, you are on the right page. In this article, I will walk you through how auto loans work in South Africa.
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First, the basics…
Terms Involved In Auto Loan
Auto-loan, also called auto finance or vehicle finance, is the sum of money lent out to you to finance the purchase of your car. You will have to pay back the money lent to you over a period of time. To understand how auto loan works in South Africa, you need to understand these terms used in auto-finance:
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This is the institution or organization who offers to lend you money so that you can buy a car. Only borrow from an institution that is a registered credit and financial services provider. The National Credit Act protects the credit market in South Africa by regulating lenders with strict rules.
Car loan amount
The car loan amount, or principal is the amount of money (i.e credit) given to you by the lender. This amount usually covers the overall cost of the car after the down payment has been deducted.
Admin and Initiation Fees
Most car loans have admin and initiation fees included. Either as a lump sum at the start, or as part of your monthly payment
In South Africa, two interest rate options are usually available. It’s best to choose that which suits more. There are;
- Fixed interate rate which is remains the same throughout the entire duration of the loan repayment term.
- Linked Interest rate, also called variable interest rate. This is linked to the national prime rate which is unstable. It can move up and down as the prime rate goes up or down. Thus, you might end up paying an exorbitant amount or you may be lucky to pay low interest.
Loan deposit/down payment
Usually, before a car loan is given to you, you will be required to pay a percent (often between 15-30%) of the total cost of the car. This shows your commitment to own the car and fully pay the loan.
Loan term/ period
This is the time duration required of you to pay the loan together with the Interest. The loan term can span for months or even years. Bear in mind that a shorter loan term means a more expensive monthly payment while a longer loan term implies small monthly payment. However, you pay much more than the actual loan when the loan term is too long.
Monthly installment is the amount of money you pay monthly to clear the loan.
This is a part of the loan you need to repay in one big payment at the end of the loan. Not all car loans have balloon payment, so you can choose the option that works for you. For instance, if a car costs R500,000, a balloon payment of R80,000 might be placed on it. This means a loan of R420,000 will be given to you on which interest will be charged. However, at the end of the monthly installment, you need to pay R80,000 at once, otherwise the car may be withdrawn from you.
Documents You Need To Take A Auto Loan In South Africa
Once you’ve chosen your vehicle, be sure that you understand all the available options, so that you can choose the option that best suits you.
To be eligible to submit an application for a car/auto loan you will need to be:
- be 18 years old or older.
- be a permanently employed salaried individual, earning a minimum salary of R6500 pm.
- have a valid South African drivers licence with no endorsements.
- be a South African citizen or permanent resident; and
- have a good credit history.
Documents you’ll need to complete your application
- A copy of your valid South African identity card/document
- A copy of the front and back of your South African drivers licence
- Proof of your income, not older than 3 months
- Salaried individuals – latest 3 months payslips
- Commission earners – Latest 3 months payslips and latest 3 months’ stamped bank statements. No internet bank statements will be accepted
- Proof of residence, such as a utility bill, not older than 3 months
Also Check>>> What Documents Do I Need To Buy A Car In South Africa
Benefits Of Taking Auto Loan In South Africa
-A quick way to get your dream car: Instead of wait for years before you can buy your car, with an auto loan, it becomes easier and faster to buy that car you have always wanted.
-Build your credit profile: Once you take an auto loan, there is a fixed rate in which you are supposed to pay back. If you are able to pay back the money in due time, you immediately increase your credit profile.
.-Securing an auto loan is not so difficult: There are various institutions offering auto loans in South Africa. This increases competition, and so you have a wide range of options to choose from with different auto loan schemes and repayment options.
Downside Of Taking An Auto Loan In South Africa
-Interest and fees: The major setback with auto loan is the interest and extra service fee charges imposed on it. However, with diligent research, you might be able to find a financing option with a suitable Interest rate.
– Inability to pay back: While we don’t expect unfavorable circumstances, there are certain situations that make it hard to completely pay back the loan at the right time.