Buying a car is not a small purchase. There is a lot of consideration that has to go into the decision to purchase a car, especially when it comes to the financial side of things. You will have to have a serious look at your financial situation when shopping for a new car, but there are some ways to know whether or not you are financially ready.
When buying a car and applying for vehicle finance in South Africa, your credit history, your current financial status and your affordability will all be checked. If you are not sure that you are ready for such a commitment, read on below for some top tips on how to tell you are ready and able to buy a car.
Do you have a regular income?
Ideally, purchasing a car will not drain your finances. But if you do not have a steady source of income, it can become a highly expensive endeavour. For example, freelancers might find it difficult to afford a car because they do not have a set and steady monthly income.
If you are applying for vehicle finance through a bank, they are likely to see you as a high-risk client if you do not have a steady source of income. This is because they will not be sure if you can make the monthly repayments for your loan. Assess your income and calculate whether or not you have enough disposable income to make monthly repayments for a new car.
What is your credit score?
Knowing your credit score is vital before you go out and choose a car. Knowing your credit score will help you to assess your financial situation and start to build your score. Having a low or non-existent credit score will hinder your ability to receive a car loan.
A good credit score ranges between 680 to 750 points, anything below 620 points is concerning and you will likely not be able to apply for car finance. You can ask for your credit score for free using various online tools, and once you know the full details you can contact the credit bureaus to question and rectify any discrepancies. You can work on building up your credit score to an acceptable level in order to apply easily for vehicle finance.
Have you found out the interest rate on car loans?
Many people fall into the trap of only thinking about the monthly repayments for their car loan. While it is important to factor these in, you should also look at the vehicle finance interest rate in 2018 to calculate the real cost of owning a car.
You will need to know how much the loan will cost in terms of interest before you sign the dotted line for your new convertible. Ask your lender what interest rate they are offering and the credit rating you will need to be able to qualify for that rating. Staying ignorant of interest rates could hurt your finances over time, so be sure to do some research before going car shopping.
Have you set up a budget?
Having a set budget for buying a car is important. It will stop you from looking at models that are too pricey and you will not be swayed by enthusiastic salespeople. Many lenders will ask for your budget when you apply for vehicle finance, so it is important to have one in mind.
To calculate your budget, you should look at the total cost of the vehicle (including sales tax, registration fees and warranties) then add on the monthly repayments and costs such as insurance. If you are buying a vehicle for a small business in South Africa, you will need to factor in salaries and business costs too. Once you have this total figure, you will be able to look at your salary and expenses in order to find out how much you can save each month towards your new car, or if you will be taking out finance, you will be able to calculate your budget.
Are you thinking new or used?
Once you have created a budget and done your research on interest rates, you will need to look at whether or not you should buy a new or a used car. There are pros and cons to both, which you will need to weigh out before making a final decision.
The pros of buying a new car include a full warranty and the ability to have brand-new technological features. One of the major cons of a new car, however, is the fact that it will experience depreciation as soon as it leaves the dealership lot. A pre-owned car offers you more variety in terms of models and features and has already undergone depreciation.