Minimum and maximum loan periods vary between 1 months and 10 years. Comparison interest rates vary between 6.55% and 60% p.a. Total interest repayments vary between R685.05 and R844.12 over the life of the loan. *Comparison rate is based on an unsecured loan of R20,000 for a term of 3 years. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. These rates can change without further notice. All rates quoted are per annum. For more information regarding fees click on "View fees & additional info +" for each product or contact the provider.
How to get bad credit car finance in South Africa
If you have bad credit and you need help buying a car, it might seem like your loan application will never get approved. However, it is possible to get bad credit vehicle financing in South Africa. Read on as we explore the options available to you.
What is bad credit?
Not all bad credit is the same. Usually, having bad credit can mean any of the following:
- Late or missed payments – When you take out a loan, you usually have to pay it back in instalments every month. If you miss your loan payment’s due date, the lender might not take legal action against you, but these late payments will be recorded in your credit report.
- Defaults – If you have completely failed to pay part or all of your debt, the lender will take legal action against you or hand over your account to debt collectors. Even when you finally pay the loan, this negative information might be saved in your credit report for years.
- Legal action or negative judgements – Having a judgement against your name makes you a high-risk borrower. That means loan providers might not be willing to consider your loan application.
- Too many debts – Having too many debts lowers your credit score. This tells lenders that you’ll not be able to afford a car loan.
How to get vehicle finance for bad credit in South Africa
The process of getting bad credit score vehicle finance is almost the same as any other loan. The only difference is you have to work extra hard to improve your credit score (both in the short and long term) and to convince the lender that you can be trusted to pay back your loan. Usually, that means doing the following:
- Clearing your outstanding debts. If you can arrange for a quick settlement on your outstanding accounts, it will improve your credit score. You may be unable to repay all your debt, but every bit helps.
- Checking your credit report. Always stay updated with what’s on your credit report. (As a South African you get one free credit report each year). If there is any incorrect information, having it fixed might improve your credit score.
- Saving for a deposit. Paying for a deposit (the larger, the better) means you borrow less, which lowers the risk for the lender. In addition, it also helps you to secure a lower interest rate.
- Comparing loan options. While shopping around for car loans with bad credit, compare many lenders to see what they have to offer. Some South African lenders specialise in bad credit loans which means they will be more willing to consider your application.
- Approaching different types of credit providers. For example, some microlenders may approve the loan based on your income and not your credit history. Some car dealerships also offer finance for bad credit customers.
- Applying for a secured car loan. When you put up your car as security against the loan, you increase the chances of getting your loan approved. That’s because the risk is lessened for the lender since they can take the car away from you if you default or miss payments.
- Looking for a car to lease or rent. If getting bad credit score vehicle finance proves to be difficult, some financial institutions offer car leases. You can rent the car for an agreed period after which you return it or buy it.
- Using a co-signer. Having a co-signer who has an excellent credit score reduces the risk for the lender. The co-signer will make repayments on your behalf if you fail to do so.
- Buying a car you can afford. If you already have bad credit, adding more debt might make your financial situation worse. As such, it’s best to apply for a vehicle loan amount that fits into your income. You’re likely to get your car loan application approved if the lender sees that you can afford the monthly payments.
Choosing the best lender for your bad credit car loan
When you’re applying for vehicle finance with bad credit in South Africa, there is a high chance you’ll be offered higher interest rates and stricter terms than normal. However, this should not stop you from trying to get the cheapest and most flexible loan available. Therefore, when comparing lenders, looking at the following helps you choose the best lender for vehicle loans for bad credit:
- Interest rates – Although bad credit car loan interest rates are usually higher, some lenders offer relatively lower rates. Looking at the interest rate gives you an idea of how expensive the loan will be.
- Early payment – Some loans allow you to pay them off early, which will be an advantage because a longer loan term means more money paid in interest. You should preferably get a loan that allows you to make early repayments without any additional fees.
- Insurance – If you’re also required to take out car insurance check to see how much the insurance will cost. If the insurance is too expensive, does the lender allow you to apply for a cheaper option of your choice?
- Pre-approval – Finding a lender who can pre-approve your loan application gives you a big advantage. Since the loan is already approved, you’re in a better position to negotiate with the dealer or seller. Furthermore, having an approved budget makes shopping for a car easier and simpler.
- Flexible repayments – It helps if the lender gives you the freedom to choose a loan plan with affordable monthly repayments. This allows you to make your payments on time which improves your credit score in the long run.
- Fees and charges – Common fees associated with bad credit car loans include a monthly service fee and an initiation fee. Besides a low-interest rate, your best option is a lender who also offers cheaper fees overall.
Compare your options with our bad credit car finance calculator
At CompareLoans.co.za, we offer you an easier way to apply for bad credit car loans. Our comparison tables above showcases the various lenders we have partnered with. In addition, we have created a bad credit car loan calculator to help you choose the best monthly repayment. Simply enter the loan amount and term, press “Calculate Repayment”, and the results will be available instantly. As a bonus, since the lenders are grouped in one place, you will be able to compare your options quickly and conveniently.
Be careful when applying for bad credit vehicle finance
Having bad credit doesn’t mean you become desperate or accept any loan offer you can get. Instead, it’s better to borrow responsibly and to make informed decisions that keep you out of any further financial trouble.
- Unreputable lenders – Some lenders will only offer vehicle loans for bad credit at very high-interest rates. Other lenders might even trick you into choosing a loan that is too expensive for you. To avoid these situations, always check if the credit provider is registered and if their reviews from other customers are positive.
- Hidden or unnecessary fees – Use the APR to get an idea of the total cost of your loan since it includes interest and additional fees. If you’re checking out car dealerships, avoid unnecessary add-ons such as extended warranties and service plans. These features increase the total cost of your loan, making it less affordable.
- Very long loan terms – An extremely low monthly payment might seem attractive, but it’s better to finish paying for the loan as quickly as possible. This reduces the interest you have to pay, which means the total cost of your loan will also be cheaper.
- Buying a car you can’t afford – Shopping for a car might be exciting and you might be tempted to buy a more attractive and expensive car. In this case, you have to be practical, and that might mean buying the car you can afford even if it’s not the most attractive option.
How to apply for bad credit car loans online in South Africa
You can apply for bad credit car loans online by scrolling up to our comparison tables and using the “Go to Site” button to visit the website of your chosen lender. If you have bad credit, the online application process is similar to other loans. However, verification and approval can take a bit longer. The lender will be looking at all the factors to determine how much of a risk you are. For car loans, online approval for bad credit also has the following general requirements:
- Minimum 18 years;
- South African ID;
- South African driver’s licence; and
- Proof of income.
Other ways to buy a car if you have bad credit
If you wish to have more choices when it comes to financing your car, you might also consider personal loans for bad credit or using your credit card funds. However, you need to understand the basics of each option, so you know what you’re getting into. Another option which is better for you, especially if you’re under debt review or debt administration, is to wait for a while until you have enough savings to afford a car. This additionally helps you to improve your credit score so that the next time you apply for a loan, the process will be easier.
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