How to apply for unsecured vehicle finance in South Africa
Unsecured car loans are not something you hear about every day. Usually, whether you’re buying a new or used car, or buying from a car dealership or private party, the car is always used as security for the loan. On the other hand, there’s no law that says all car loans must be secured. If you’re looking for a no strings attached car loan, then you might want to consider unsecured vehicle finance.
But first, find out how this type of car loan works and more important details so you can make the right auto financing decision.
What is unsecured vehicle finance?
Although an unsecured car loan is a borrowing option that is not typically offered by South African lenders, it actually works quite simply. Like a personal loan, there is no need to use the car or any asset as security. Furthermore, the amount you can borrow is not limited to the value of your car.
But, also like personal loans, unsecured car loans come with comparatively higher interest rates, and you need a good credit score to qualify. For the lender, they represent a greater risk since they won’t be able to claim your car if you default. As a result, car loans that are not secured can be hard to find.
Secured car loans vs. unsecured car loans
When you’re financing your car purchase, you’ll likely need to decide between a secured and unsecured loan. Each point below compares the main characteristics of the two loan options:
- Secured vehicle finance requires the car to be used as collateral while an unsecured loan requires no such security.
- With a secured car loan, the lender can take the car from you if you fail to repay the loan according to the agreement you signed. On the other hand, with unsecured loans, the lender can’t automatically claim the car from you, even if you miss payments.
- Secured loans are more common than their unsecured counterparts, and they have comparatively lower interest rates.
- Lenders usually offer secured loans that match the price of the car. However, with unsecured car finance, you might be able to borrow more to cover other car-related expenses like registration and insurance.
Unsecured car loan calculator
By the time you go car shopping, you probably already have an idea of what you’re looking for. Whether it’s a small car or a van, one of the most important questions you should ask yourself is: Can I afford it?
Our unsecured vehicle finance calculator can help you answer this. It shows you the estimated monthly repayment for the loan you want. Simply, toggle right or left until you have the right loan amount and the repayment period. Next, click calculate to find a reasonable budget for your monthly payment.
Comparing unsecured car loans
If you have found several loan offers, considering the following factors can help you arrive at a final decision:
- Interest rate. Depending on your credit score, find the lowest rate you can get. It could be a variable or a fixed rate, but overall it should be low enough so you can still manage your finances after you borrow.
- Charges and fees. The best way to check out the charges and fees for your loan is to look at the APR. It not only includes the interest rate but all the fees as well, e.g. the initiation fee and monthly service fees.
- Repayment flexibility. Does your lender allow you to make early or additional repayments without any penalty fees? It’s best to choose a loan with more flexibility.
Advantages of unsecured vehicle finance
- No collateral is required, so there’s no risk of losing the car.
- The loan allows you the flexibility to buy from a dealer, private party or auction.
- You own the car even before you finish making your monthly repayments. That means you can sell the car before the loan term expires and buy a new one.
- The loan amount is not limited to the purchase price of the car. You can therefore borrow extra money to pay for other needs.
Disadvantages of unsecured vehicle finance
- Typically, this type of loan is not easy to get, especially if you have bad credit.
- You might not risk losing your car when you miss payments, but you can get further into debt due to the high interest rates. Also, the lender can seek a court judgement against you.
- You might have to borrow a limited amount due to the unsecured nature of the loan.
Should you choose an unsecured car loan?
If you’re still sitting on the fence regarding your choice of vehicle finance, here are a few questions you can ask yourself to make things clearer:
- How much can I borrow? – Typically, secured loans allow you to borrow more money, but it mostly goes to cover the purchase price of the car. In contrast, unsecured loans will enable you to borrow more than the car’s price. Unsecured loans are, therefore, more suited for lower-price purchases, so you use the extra money to cover other car-related costs.
- How much will the loan cost? – With their higher interest rates, unsecured loans might have greater flexibility, but your loan’s total cost might also be more.
- Will I keep the car for a long time? – If you’re planning on selling the car later on, an unsecured loan might be better. For secured loans, you can only sell the car if you have finished repaying the loan.
- What does my credit score look like? – If you have bad credit or you’re still building your credit, you might not qualify for an unsecured loan.
Ready to apply for your unsecured car loan?
Check out our comparison tables to see our popular list of featured lenders. Once you have used the information in this article and our convenient calculating tool to pick a lender, simply click “Go to Site”. Please note, general requirements for unsecured vehicle finance are as follows:
- Minimum 18 years;
- A regular monthly income;
- Proof of income – bank statements and payslips;
- Valid South African ID; and
- A good credit history and credit rating.
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