Owning a car is one of the most important things for a South African - particularly with a limited public transport system, not to mention expensive costs and sometimes dangerous conditions, long distances and numerous safety and security problems.

Whether you're looking to buy your very first car or looking for your third trade in opportunity conducting research and knowing what you're getting yourself into is critical to getting a good deal and making the expense worth it.

When it comes to finance, along with debt consolidation loans, car loans are probably the most complex and challenging forms of finance. If not researched, considered and done wisely not only will you risk experiencing financial hardship but you could pay more than you really have to and even lose your vehicle through repossession - a situation that you'll undoubtedly want to avoid.

This guide to car loans in South Africa will take a completely unbiased look at vehicle finance and will help you consider all you options, understand what to look for and what to avoid when buying a new or used vehicle.

Where and How to Begin Car Shopping

You can begin looking for your ideal motor vehicle by conducting research online, visiting dealerships or by checking out auction houses among many other options. It's always a good idea to check and compare the prices of various cars online before going out to view and test drive any particular model of car or any specific vehicle - in the case of used or pre-owned cars.

If you want to use a particular lender or bank then you may want to contact them and find out where their authorized dealerships are or if they have a partnership with one.

This would be a good place for you to start your car search but, we don’t recommend that you choose one dealership or lender before doing a little bit of research.

This will ensure that you know the current market value of the vehicle you're looking for as well as ensure you get a good overall deal from vehicle to finance and all the way to insurance.

You can buy your car privately by contacting an owner or private seller, through a used or new dealership and from an auction house. Whichever method you choose to use it's important to make sure that you know exactly how much you can afford, how you're going to finance the vehicle and from where.

Securing a good finance deal that is appropriate for your financial status, budget and needs is just as critical as choosing the right car. We are passionate about empowering you to understand, research, find and get the right motor vehicle finance and it all starts with a simple definition of what car finance is and where you could get it.

Understanding Car Loans and Where you can get them

Vehicle finance or a car loan is simply a form of secured credit that is lent for the specific purpose of facilitating the purchase of a motor vehicle. Although the word vehicle can be used to describe bikes, boats, caravans, trucks and so on, in this guide we will consider the term to refer to a passenger vehicle - whether sedan, hatchback, single or double-cab.

We will also assume that the motor vehicle finance will be used to purchase a car that will be used privately and not for business purposes. Car loans are typically - if not always secured against the vehicle being purchased.

Essentially, you will borrow a sum of money from a lender to purchase a car - you will then repay the sum borrowed (called the capital loan amount), plus interest in installments for a pre-determined period of time (called the loan term).

You can get a vehicle loan from a bank, a private lender, an alternative lender or a dealership. Although a bank is likely to offer you the lowest interest rates and fees, banks have very stringent eligibility requirements and you will have to have a very good credit record and a decent disposable income to be considered.

Personal Loans versus Car Loans

Many lenders do not offer specific car loans but state in their advertising and promotional materials that their personal loans are ideal for financing the purchase of a vehicle. Although all lenders on the South African market will offer some form of personal loan - we recommend that you choose to research and consider only lender who specifically offer vehicle finance or a car loan product.

This is because personal loans are generally unsecured - which means you will end up paying a higher interest rate than you would with a regular, secured car loan. Another factor to consider is that those offering personal loan are not specialists in vehicle finance and will be unlikely to offer you critical advice such as what the market price for the car you are looking to buy is.

This advice could save you thousands of Rands - especially if you're considering using a private dealership or buying from a private seller. Finally many personal loans will not allow you to finance a brand new vehicle as they rarely exceed R150,000 with most lenders.

Getting Pre-approved for a Loan

Prior to making any loan applications or even looking for a car loan you must always use a loan calculator to find out how much you can afford to borrow. This will give you a good idea on your price range and will help you make better decisions moving forward.

You also may want to obtain a copy of your credit report to validate the information therein and ensure you credit score is up to standard. The next step when considering buying a car is to secure pre-approval on your car finance. This not only confirms you will get the finance you need but, it gives you an exact budget and also gives you a whole lot of bargaining power with dealers and sellers.

Most dealerships will offer you in house finance and you should never accept this blindly. Always obtain multiple offer from at least 3 lenders before making a formal application for a car loan. Another thing that you certainly want to avoid is opting for a balloon payment at the end of your loan term.

This may lower your monthly installments but, since the vehicle isn't legally yours until the entire loan - and the interest, is repaid if you miss this balloon payment you may lose your vehicle.

Important Things to Consider about Vehicle Finance

  • Most lenders will not finance vehicles older than 10 years
  • You can get 100% finance however, most lenders will require you to put up a deposit to secure the loan  and this can be anything from 10% onwards depending on loan amount and credit history
  • All banks and mainstream lenders will require a good credit history when considering your loan application
  • You can apply for a car loan online or in a lenders branch however, applying online saves time and in certain cases fees
  • Balloon payments are very dangerous and should be avoided at all costs
  • Always use a loan calculator to determine how much you can afford to repay in monthly installments as well as the total cost of your car loan
  • Always get pre-approved for a loan as this will give you the necessary bargaining power to bring down the sale price of a car.