+27 (0) 12 347 0561 / +27 (0) 12 347 0562 info@iqaccounting.co.za

Most people are not able to buy a car in cash upfront, so the only way to afford a car is by applying for vehicle financing.

The first requirement lenders look out for is a credit score. Since buying a car is a long-term arrangement, the lender needs to know the likelihood of you paying your installments each month.

This is where it can get tricky as some people have a low or bad credit score.

We’ll have a look at some aspects to consider when buying a new car and what to do when you do not have a good credit score.

The first step is to consider your budget or affordability.

Things to take into consideration are petrol, maintenance, interest hikes, and security. These are also aspects that the lender will look at, including your other fixed monthly expenses to determine if you are creditworthy.

Make sure that you have the necessary documents for the purchase.

When buying at a dealership, the Finance and Insurance Representative can assist greatly with some of the administrative hassles like applying for finance and negotiating better interest rates.

You will need to make sure that you have your ID, a valid driver’s license, your latest payslips, and bank statements (usually three months’ worth) as well as recent proof of residence.

When buying a car through your company, what you will need are:

  • Your company’s registration and VAT number.
  • Banking details and the business’s balance sheet.
  • Registered address and the business contact details.
  • Details of owners, e.g director, trustee, and members.
  • Details of what you’re planning on financing.

We will be able to assist you with this process of the application when in need of documents or determining your affordability.

After approval, you will receive a deal.

If you’re approved for a loan, the banks will come back with an offer, with the main terms concerning the interest rate, the number of years, deposit amount, and residual amount.

Interest rate: This will be fixed or linked. A fixed interest rate is typically higher than a linked one, where your interest rate is linked to the prime rate.

The number of years: Most banks will agree to finance your car for up to 60 months or five years. Ensure that you don’t stretch your loan term over a longer period of months.

Deposit: You can apply for finance without a deposit, but the banks may come back with an offer that compels you to put in a deposit if you accept it.

Residual payment / Baloon payment: This is a percentage of the cost of the vehicle that is paid at the end of the contract term.


Most financial institutions won’t give you a car loan if you don’t have comprehensive car insurance, so make sure you have this in place when you go in to sign all your documents.

Steps to take when you need to finance your next car with a low credit score:

There are other ways to get vehicle financing with a low credit score.

Check your credit score:

Before assuming you have a bad credit score, you need to check it first for any incorrect information that you can dispute, such as fraudulent activities under your name. If there are any issues, you’ll need to dispute them before you go to the lender.

Improve your credit score:

You can always improve your credit score through the right financial habits.

  • Pay your bills on time from now on as missing a payment shows lenders that you aren’t reliable.
  • Prove to lenders that you are not financially dependent on your credit by paying more than the minimum amount if you cannot settle the balance.
  • Improve your credit utilisation, which is the amount of credit you have used compared to your overall credit available by settling small store and credit card balances.
  • Avoid applying for credit too frequently as it shows you are desperate.
  • Build up a track record of being a good payer.

While this won’t change overnight, it will put you on the right track of repairing your credit so that you’re more likely to get your loan once you apply for vehicle finance.

Credit is a part of our lives and can help improve your life, but you need to be very careful with how you spend it. If you struggle with paying your debt or budgeting to do so, feel free to contact us for assistance.

For any more information or further tax advice, you are welcome to contact Deon or Marcel on
012 347 0561 or email us at info@iqaccounting.co.za.

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