Most South Africans find it difficult to live without credit. The Debt Counselling Association has recently released staggering figures that reveal 40% of South African consumers who are in debt, are struggling to make their monthly repayments.
If you fall within this bracket, an approved car finance application may be difficult. We’ve listed five of the most common reasons why South Africans struggle to obtain car finance and how this problem can be solved:
A Low Credit Score
Financial institutions use credit scores for the application of store cards, credit cards, personal loans and home loans. A credit score ranges from 300 to 850. If your score is below 581, you are considered a higher risk to a financial institution. And, if your credit score is below 526, you are unfavourable, which means you’ll have difficulty being approved for finance. In addition, if your finance application is approved, the interest will be extremely high. All South Africans are entitled to one free credit score report per year.
If you are blacklisted, you can still apply for car finance by using a ‘rent-to-own’ option. The most common reasons for being blacklisted, is if you have a bad credit rating from an account that is in arrears or, you have a judgement against your name, due to long outstanding payments. It is always best to make the monthly payments, or if you are not able to do, contact the creditor and make payment arrangements. Once you have paid the account, your credit profile won’t be cleared as soon as you’ve settled your debt. This can reflect on your profile for two or more years.
In order to apply for vehicle finance, one of the minimum requirements is that you are able to afford the vehicle. This does not guarantee that your vehicle finance application will be approved. Credit institutions need to ensure that you have sufficient income to pay for the vehicle and insurance, by deducting your mandatory monthly expenses, from your net salary.
In general, a deposit of at least 10% of the price of the car is required, where the remaining cost of the vehicle is financed, over a period of between 36 to 54 months. Paying a deposit on a car can be an advantage to you, in that it decreases the monthly payment instalments.
There is no doubt that being under debt review or undergoing debt counselling will drastically affect your overall credit score and may take a couple of years to rectify. But, it can be done. Legally, consumers under debt review cannot take on any additional debt until all outstanding debt has been settled and the consumer’s debt review status has been changed by the National Credit Regulator.
At Earn-a-Car, you won’t be taking on additional debt. Instead, you will be renting a car over a period of time. We offer simple rent-to-own car finance solutions for debtors that need to finance a car, yet struggle with bad debt or who are blacklisted. We require a nominal upfront administration fee and a commitment from our customers, to make the agreed monthly payment, in order to qualify.
Contact us today for more information about bad credit car leasing.