How to Finance a Car Without a Credit History
It can be challenging for young, first-time car buyers to get a loan through a bank or other financial institutions simply because they haven’t yet built up a credit history.
When applying for car finance a good credit report sets you off to a good start because it indicates that you're committed to repaying your debts and keep on top of your repayments. But without that crucial credit history, where do you start?
Suretyship
Without a credit record and having never purchased a car before, you'll need to provide the financial institution some form of security. This specialised insurance comes in the form of a person and will help you to obtain the car loan you need because that person guarantees you will make payments regularly and on time.
Moreso, that person must be willing to step into your shoes and repay your debt to the credit provider if and when you cannot do so.
Who is the best person to sign surety?
Typically, parents would have built up their own credit history along with some assets, which banks use as security for a loan. As they are most likely to be prepared to help their children get on their feet, they are often the ideal surety for a young person’s first vehicle finance transaction.
The bank will assess both parties, in this case, your parents’ and your own financial affairs before granting a loan. If you fail to meet your loan obligations after the loan has been granted, the bank will hold your parent signing the surety responsible for the debt.
This is why it’s important for you to budget carefully for your new vehicle and remembering to take into account costs such as:
- Loan repayments – Capital sum, interest, and fees.
- Vehicle insurance – All young car owners should have comprehensive cover.
Shop Around
Always shop around for the best vehicle finance and trade-in deals before you make your final decision. This is especially true if you have a trade-in on your purchase. The price dealers offer for trade-ins vary considerably depending on their stock levels and perceived ability to sell your trade-in.
Auto Pedigree also offer deal assistance on trade-ins which helps to cover some or all of the settlement value of the new vehicle.
How to Build Up a Credit History
By buying your first vehicle, even with the help of a surety, you will start building your own credit history which will be a positive future asset as long as you handle it correctly. Follow these simple rules:
- Pay your bills on time
- Pay your credit cards off each month
- Reduce your debt
- Keep your credit card spend low
- Keep new credit applications to a minimum
Read more about how to build up your credit history and improve your credit score.
Vehicle Finance for Graduates
If you have already made progress towards building your future and completed your tertiary studies, you may qualify for favourable interest rates or even vehicle credit in your own name.
Research the options provided by South Africa’s leading financial institutions and select the one that best meets your financial and life circumstances. Here are some offers made by banks to help young, qualified people finance their first vehicle:*
- Standard Bank – Prime less 0.25%
- Absa bank – Prime less 1%
- Investec – Developed a package for top-earning graduates to meet their banking, financing and wealth management aspirations.
- Nedbank – Provides the Professional Banking package for under 30s with a four-year degree. Through this product bundle, young people are given a 50% reduction in banking fees and assigned their own personal banker to help them with vehicle and other asset financing.
- Wesbank – The Wesbank Graduate Finance portfolio was launched in partnership with leading service providers to enable graduates with no credit history to buy a car. Graduates from various institutions are given competitive interest rates and tailor-made packages on selected car models.
* Interest rates correct at time of publication
Conclusion
Having no credit history can be a daunting catch-22 situation if you need to finance a vehicle. But if you’re determined enough and prepared to put in the effort, it’s not impossible and your time and patience may well pay off in the end.
When giving serious consideration to buying your first car, visit your local Auto Pedigree dealer for advice on suitable vehicles and financing options.
Disclaimer: Auto Pedigree and the authors make no representations as to the accuracy or completeness of any information on this site or by following any link on this site. Auto Pedigree and the authors will not be liable for any errors or omissions in this information nor for the availability of this information.
