Applying for car finance with bad credit

In short, the answer is. It is possible to apply for car finance even if you have a bad credit rating or have been blacklisted. However, this may depend or your actual credit score and the reasons why you have been rated poorly. In South Africa, credit bureaus will use the criteria found in your credit report to determine your score. This criterion includes:

• Your basic account information
• Your payment history (do you make your payments on time)?
• Debt owed
• The age of your accounts
• Any judgements or defaults against your name

But even if your credit rating isn’t up to par, there are formal credit providers as well as microlenders who will agree to provide you with a finance plan by taking more than your credit report into consideration. They will look at your income versus your expenses and they will scrutinise your recent spending habits to determine if you are a risk or not.

Before you apply for vehicle finance, you can streamline the process by knowing what your credit rating is.

In South Africa, you are, by law, entitled to a free annual credit report. The credit bureaus are obliged to provide this information but will ask a fee if you request your report more than once in a 12-month period. Examples of national credit bureaus include Experian and Transunion, to name but a few.

Credit providers use different scoring methods, but the rating is typically between 330 and 830. If your score is above 750, then you shouldn’t have trouble getting a loan. A credit rating below 487 is generally considered a low or “bad” rating.

When you have been blacklisted or if you have a bad credit record, then you may still be able to:

• Qualify for a loan by paying a deposit and by providing the finance provider with sufficient proof of a minimum gross salary.
• Approach a dealership that caters to customers who do not qualify for vehicle finance through the regular channels because they have a poor credit rating or are blacklisted. These dealerships often offer in-house finance that’s covered by a third-party auto lender.

Keep in mind that the interest rates of these agreements are often considerably more than what the banks would offer. You are also urged to scrutinise the terms and conditions to avoid paying penalties.

Having a low credit score can reduce your chances of securing the cheapest finance plans, but there are still a few simple things you can do to improve your rating to get the best car finance deals. You can:

1. Make your payments on time and pay in full. Use your online banking to set up reoccurring debit order payments.
2. Prioritise your credit card payments. Many credit bureaus pay specific attention to your credit card instalments.
3. Make sure that you never get charged with a court order. Take heed to warnings and always try to pay your debts before you are summoned to court.
4. Never take on more debt than you can handle. As a rule of thumb, try not to use more than a third of your gross income towards debts.
5. Avoid applying for credit while you are in the process of improving your score. Looking for credit can have a negative impact on your score.  Rather improve your credit rating before applying for a loan or a new account.

When it comes to sourcing the best car finance deals, then we encourage you to shop around before signing an agreement on a whim. The different providers will offer different terms and interest rates and it’s up to you to find a lender who will fit in with your budget and your lifestyle.

Use Money Expert’s vehicle finance comparison tool to compare deals between financial providers. All you need to do is answer a few questions and we will source the best deals from the most reputable financing companies in South Africa.