Get the best low interest rate car finance in South Africa
When you finance a vehicle, you obviously want to get the best deal available. Among other things, a low interest rate is one such factor that can sweeten the deal for you. That’s because while you might need some financial help to buy your dream car, you also want a lender that won’t charge you too much for borrowing.
Like so many South Africans, you might be wondering how to finance a car with a low interest rate and possibly save thousands of rands. This article explains how low interest rate car loans work and how you can make them work for you.
What is considered a low interest rate car loan in South Africa?
In South Africa, the National Credit Act (NCA) prescribes the maximum interest rate, which stands at around 27.5%. Some South African lenders advertise their interest rate as low and competitive when they’re in a range between 10-15%. However, what a low interest rate means to you depends on your situation.
Do you have an excellent credit score, or does your bad credit need a few repairs? A low interest rate car loan is, therefore, the most favourable rate you can get while being realistic about your situation and the risk the lender has to take.
5 best ways to get low interest rate car loans
Improve your credit score
Your credit score is a powerful factor that affects the interest rate on your car loan. It is a direct result of your credit history which shows the lender if you have faithfully paid off your past loans. Before you apply for a reduced rate car loan, take the time to improve your credit score.
Put down a deposit or choose a balloon payment
You can still have your car delivered without paying a single rand, but a deposit will reduce how much you have to borrow. This, in turn, reduces the interest you’ll pay. Deposits or balloon payments are usually a maximum of 20% of the full purchase price. The bigger the lump sum, the more you save.
Go shopping for car loans, especially if your credit score is not the best it can be. Don’t settle for the first option without seeing if there are other better offers. You can check out the comparison tables above to see our list of featured vehicle finance options.
You can use another person’s good credit score to get a lower interest rate if you add them as a co-signer. This could be family or a friend who then becomes responsible for paying your debt if you fail to make repayments.
Negotiate for a better deal
Interest rates vary depending on the time you apply for the loan. Once you have a better idea of the average interest rate being offered by most reputable lenders, you can enter into an informed negotiation with your chosen lender. You can also research about any available discounts or loyalty programs.
How is the interest rate for your car loan calculated?
Understanding the following factors that can affect your interest rate is important if you want to negotiate for a better car loan deal:
- Secured vs. unsecured car loan. If the car loan is secured, you can get a lower interest rate because the lender is taking on a lower risk when you use your car as security.
- New vs. used car. New vehicle finance usually requires you to borrow more which means you pay more interest. On the other hand, used vehicle finance is cheaper if the purchase price is low.
- Fixed vs. variable interest rate. More often than not, a variable rate car loan will get you a lower starting interest rate than a fixed-rate car loan.
- The length of your loan. The longer the loan term, the more you have to pay in interest.
- Stable Income. Lenders usually prefer permanently employed individuals with a regular and sizeable monthly income for their low-interest-rate loans.
- Credit history. The majority of attractive and competitive interest rates advertised by lenders are usually reserved for individuals with a clean credit history and a sufficiently high credit score.
Choose affordable monthly instalments with the low interest rate car loan calculator
You can calculate the cost of your loan per month with our low interest rate car loan calculator.
That means you get to budget ahead of your loan application. Besides that, you can also use the monthly repayment results to compare loans since they will be shown in the comparison tables for each lender.
Simply, tell the calculator how much you want to borrow and for how long. Next, click calculate. For a better loan option, you can use the calculator several times.
What do you do if you can’t get a car loan with a low interest rate?
Is the interest rate on your car loan still not good enough for you? Here are a few things you can do to keep the total cost of your loan as low as possible:
- Speed-up the payments – Keeping the payback period on your loan as short as possible is a guaranteed way to save money. Car loan terms can extend up to 72 months, but most lenders accept early repayments without charging you extra fees.
- Skip the expensive financing add-ons – If you’re applying for dealership vehicle finance, you can cut costs by avoiding the extras. Examples include theft protection, and tire and wheel protection since they’re often covered by your car insurance.
- Refinancing – If you’re reading this and you already have an expensive car loan, then it might be better to refinance. Given that you have a sufficiently high credit score and the car is still in good condition, you can switch to a loan with a better interest rate and start saving money.
- See if you can get a pre-approval – If you can get your loan approved before you approach a car dealership or another seller, you have negotiating power since you already have the cash.
- Look out for the loan fees and charges – You can still save money by looking for a loan that doesn’t have a lot of fees. Some lenders include car insurance in the payments, but you can always find cheaper, quality insurance of your own.
Avoid these mistakes when looking for low interest rate car financing deals
- Applying for too many auto loans. Too many hard enquiries on your credit report can lower your credit score. As a result, you can end up not qualifying for a low interest rate.
- Focusing on the monthly payments only. You want a monthly payment that doesn’t put too much pressure on your budget. Also, pay attention to the other loan charges and fees. Most charges associated with car loans include initiation fees, monthly service fees, and early payment or late payment fees.
- Buying a car impulsively. It’s easy to get excited and start focusing on the bigger and better aspects of car shopping. The best way to keep your loan’s total cost low is to go for the most affordable loan amount.
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