Car Finance for Bad Credit: Explore Your Options

Car Financing in South Africa: Your Guide to Getting Approved

Almost half of all new and used car purchases in South Africa are done through car finance optionsⁱ. But for most first-time buyers and those who don’t have enough capital to buy a car upfront, financing is the only option. Financing can be complex and many people face difficult barriers to getting vehicle financing approval – the first step in the vehicle financing journey.

Read on to discover how to get approved for vehicle finance. This guide explores the ins and outs of car financing and what you can do to improve your chances of securing the financial assistance you need to make your car dreams a reality. We also look at your typical financing options and focus on how anyone with weak or less-than-perfect credit scores can still get approved for financing.

Car financing 101

Before we get started, it’s important to understand what car finance actually is and why people choose this option instead of simply paying cash for a new or used car.

What is car financing?

Car financing is an alternative to paying cash for a vehicle. It is a credit agreement between yourself and a third-party financier, like a financial institution, bank or credit lender. It is essentially like taking out a loan to pay for your car so that you can use it while it is being paid off. The financier pays the seller or car dealership the money for the vehicle, and you drive it while paying them back. Once you have paid off the amount, the car is yours.

Why choose financing?

Financing makes owning a car possible without having to pay over a massive amount of money upfront or waiting until you’ve saved enough to pay for it in cash. Not many people have hundreds of thousands in cash available to them, and using all your savings for a new car can leave you with nothing left to survive on. Financing exchanges a large one-time payment for a series of smaller, more manageable ones. But in order to understand how to get approved for vehicle finance, first, you need to know the lingo.

Key financing terms

Financing can be complex and there are many different options available to car buyers to pick from. Here are a few of the car finance terms you’ll need to know before getting started.

Deposit – The initial cash amount (usually around 10% of the total value of the car) you need to secure or reserve the vehicle. This tells the seller you’re serious about buying a car and can take a big chunk out of the outstanding amount.
Interest – This is an amount added to the money you borrow to buy the car. It is usually paid off first during the financing period, and the interest rate is determined by various factors, including your risk profile and the current prime lending rate.
Financing term – This is the amount of time you have to pay back the financed amount. It is usually expressed in months and can range anywhere between a year (12 months) and as much as 96 months.
Instalments – This is how much you will pay back to the financier every month. Some instalments remain fixed, while others are variable. Standard instalments are calculated by dividing the total amount still owed on the vehicle by the number of months in the financing term.
Settlement – If you can afford to pay off the outstanding loan amount sooner than expected, you can ask to settle. This often happens if you decide to buy a new car or before you’ve reached the end of your financing period.
Balloon payment – This applies to balloon-type finance agreements where you can agree to pay a larger amount towards the vehicle near the end of your finance term instead of having to save for a deposit upfront. Learn more about car balloon payments and dealership financing here.

Credit scores and car finance

Credit scores play an important role in getting vehicle financing approval. Credit scores represent the creditworthiness of an individual and tell the financier how likely you are to meet your obligations and if you’re a good candidate to be approved.

Unfortunately, not everybody can meet their repayment obligations every month. A person may lose their job, be unable to work, face unexpected expenses or run into debt problems. This can affect your credit record, causing problems for the financier because they’re not getting repaid regularly and on time. So, they use peoples’ individual credit scores to determine how attractive an applicant is to receive financing.

Many people have poor credit scores, making getting approved for financing difficult. While this doesn’t disqualify them from securing financing, it can limit the options they have, make their financing more expensive or lead to challenging conditions being placed on the agreement.

Knowing your credit score

Do you know what your credit score is? While most people who have ever taken out credit – whether getting a small cash loan from the bank or opening a retail credit account – will have a credit score, some people don't have one. Here's how to secure vehicle financing approval without a credit history.

These scores tell financial institutions how dependable you are and are calculated by credit bureaus who create credit reports on your profile. These factors include how much credit you have taken in your lifetime, your repayment track record and how many times you’ve missed a repayment.

Credit score rankings

While there is no fixed credit score scale, credit scores typically range from 300 to 850 (you cannot have a score below 300). Understanding what your credit scores mean is crucial to figuring out how to get approved for vehicle finance .Here is a good guideline on credit scores:

Very poor: 300-499

A credit score in this range means you’re having big credit problems. You’ll struggle to get approved by almost all financing institutions and urgently need to take action to improve your scores.

Poor: 500-579

If you’re scoring in the 500s, financing institutions will see you as having credit issues, making you a risky candidate for financing. If you do manage to get approved, you’ll likely be paying very high interest rates. Start working to improve your scores ASAP.

Average: 580-699

In this range, you may be approved by some financing institutions, but not all of them. You’ll also probably be asked to pay higher-than-normal interest and will need to improve your score if you want to secure favourable auto loan terms.

Good: 700-779

Most people aim to have a score no lower than 700. This is where you want to be, and shouldn’t have too many problems getting approved for car finance. While scores nearer to 700 will come with higher interest, the closer you get to 800, the better.

Excellent: Above 780

If your credit score is above 780, you’re in great shape. Most financing institutions will be happy to approve your financing application, and some may even compete to offer you attractive interest rates. Keep it up.

You can find out your credit score by asking for a credit report. This will tell you what your score is and which areas need attention. Many financial institutions offer free credit reports.

How to improve your chances of getting approved for car financing

So, what can you do to improve the odds of getting approved for car finance? There are many steps you can take to improve the likelihood of getting the green light to finance the vehicle of your dreams. Here are some of the ones known to work wonders.

Improve your credit score

This is the top option recommended by financial institutions for boosting your chances of securing financing for your vehicle. Improving your credit score may take some time and effort, but once it’s on the road to recovery, you’ll open many more doors.

Pay off your outstanding or overdue debt as soon as possible. Set up a plan and stick to it.
Make on-time payments, engage with your credit provider and be disciplined.
Cut back on spending or start paying in cash instead of using credit.
Review your credit profile and dispute any errors or inaccuracies that may be affecting you negatively.
Audit your credit profile to make sure you are not being penalised for incorrect information.
Pay off any big debts early if you come by some extra cash. This is a great way to signal your new and improved credit discipline.
And stay on track. The longer you keep your credit activities healthy, the faster your score will improve.

Level up your deposit

If you come to the table with a bigger than required deposit – say 20% to 30% of the vehicle’s value or more, even if your credit score isn’t as rosy as you’d like, the larger deposit will help to sway lenders and dealership financing options in your favour. Read this post to learn all you need to know about car deposits.

Start saving immediately towards your deposit. Every day counts, so set up a plan to put away a little every month.
Sell any unnecessary items or cash in smaller investments if you have any. Of course, you can always tap your savings, though this may be risky.
Get a side hustle going. The extra income will go a long way towards helping you hit your deposit goals.

Pick a financing option that sweetens the deal

are many different car financing options out there. Some may exclude you from getting approved based on your profile, while others are designed to help people secure vehicle financing approval despite their challenges.

Instalment finance – If you have your deposit ready to go and know how much you can afford every month, backed by proof, you shouldn’t have too many issues getting approval.
Balloon payments – This financing option is great for people who don’t have a deposit but can demonstrate that they’ll be able to pay off a large lump sum toward their car at the end of the financing period.
Guaranteed Future Value (GFV) – Here, you get to follow the instalment finance model and the dealership will purchase the vehicle back from you at the end of the term. However, GFV comes with some strict conditions, including not exceeding the agreed mileage, damaging or overworking the car and ensuring it is well-maintained.
Renting to own – This vehicle financing model, AKA ‘car leasing’ involves renting a car from a dealer for a set period. If you manage to reach the end of the agreed time, you can make a larger balloon payment and essentially buy the vehicle. This is a top option for those with poor credit scores, though it is risky.

Bring in some reinforcements

You can also reach out to others and get a helping hand in getting approved for vehicle financing. If you’re a young, first-time car buyer or need someone to take on the risk, this is a great choice.

Ask somebody to co-sign for your vehicle financing. If you miss an instalment or default on your agreement, they become liable for any penalties or consequences.
Ask someone to apply for financing on your behalf. They then essentially own the car and pay for it while you get to drive it based on the agreement you have with them.
As for a low-interest or interest-free auto loan from family members, friends or even your employer to put towards your deposit. You’d be surprised how much people are willing to help.

Approach the experts and get some assistance

Of course, you can also ask for assistance. There are many exciting programmes and initiatives empowering people to get behind the wheel of a new or used vehicle.

Look for private sponsorships or offers of work with associated benefits like allowances for a vehicle.
Ask about deal assistance options that provide the breathing room you need to make buying a new or used car possible. These can include special amounts included in your deal that reduce the impact of weak credit scores or allow you time to earn more to pay for your vehicle.

Get approved for car finance today!

Don't let bad credit stall your car ownership dreams. With careful planning and exploring various options, you can secure vehicle financing approval and hit the road with confidence, no matter your current credit score situation. Knowing what you need and how to get approved for vehicle finance is only the beginning.

Speak to car experts like Auto Pedigree who understand the needs of South Africans when it comes to buying a car. Especially when it comes to figuring out how to pay for it. Car finance makes buying the car you deserve, possible. Auto Pedigree is there to assist with dealership financing when you need it.