Living costs go up all the time, so you have less money left over to spend on your wheels – and the cost of cars is also skyrocketing. Even locally built cars have a lot of imported components, which cost the manufacturers more every time the rand goes down – and we wind up paying the difference.
Which makes applying for credit even more dicey – but here are five tips from WesBank (and they should know) to shift the odds in your favour:
1 Work out how much you can afford to spend
Write down your monthly income after taxes and deductions, and subtract all your living expenses – food, rent, electricity, airtime, TV subscriptions, school fees, everything you have to spend money on. What’s left over is your disposable income – money you can spend on things you want, rather than things you need, including a new car.
Do this before you start shopping for a car; then you’ll know up front how much you can afford to spend on the new wheels. WesBank also has an affordability calculator to help you work it out.
When you’ve finished, write it out again neatly on a fresh sheet of paper. That way, when you do apply for credit on a new vehicle, you’ll have impressive evidence to show the bank that you really can afford it.
2 These extras are not optional
Buying a car isn’t just about the monthly instalment; cars also cost money to run. You’ll need some of that disposable income to pay for insurance (painful but necessary – the bank will insist that car must be comprehensively insured), fuel and, if the car doesn’t have a service plan, servicing (it’s a good idea to put some money aside each month towards the next service).
Make sure these extras are shown in your disposable income calculation; that will definitely improve your chances of being approved for a car loan, says WesBank.
3 Save up for a deposit
It’s not absolutely necessary to put down a deposit – but it certainly makes you look like a financially responsible person and, of course, reduces the amount of credit you’re asking for, as well as your monthly payment. Banks like it because it usually means that the total amount they need to advance you is less than the value of the car, which will help them in case the whole deal goes pear-shaped.
4 Settle as many of your other debts as possible
Your credit profile will show the banks how you handle monthly payments; if you make the payments on your credit card, clothing accounts, overdrafts and home loan on time every month, that shows you’re a reliable borrower, and you’ll be likely to do the same with your car finance.
Which is why it is very difficult to get vehicle finance if you’ve never had an account, contradictory though that sounds.
But here there’s a kicker; there are two types of credit agreements; the first is a single transaction for a fixed amount that gets repaid over a certain period. The second type is a credit facility such as an overdraft or credit card with a limit up to which you can spend. Here the bank has to treat your application as if your credit facilities are already all maxed out, no matter how little you actually owe on them – i.e. a worst-case scenario.
The trick is to either to close these or pay them down and reduce the limit; this will not only stop you from spending money you don’t have, it’ll make the bank’s ‘worst case’ calculations come out a lot less ‘worst’.
5 Trading in for the best deal
If you already have a car, and you’ve had it more than four years, its trade-in value will probably be more than you still owe the bank. That will leave you with money in hand after you settle the finance on your old car, which you can use as a deposit on the new one. And if your old car is already paid for, you can use the whole trade-in amount as a big deposit on the new car.
If you still owe more than your present car is worth, you’ll either have to keep it until you reach the break-even point, or put in some extra money of your own to settle the existing finance; wherever that money comes from, it will make the bank look twice at your new loan application.
The bottom line
Finally, be patient and shop around; the new car market is very competitive and dealers often have special offers. Find the deal that suits your pocket and then do your homework – the more complete the budget calculations you bring to your next finance application, the better your chances of it being approved first time around.