The minimum salary you need to qualify for car finance in South Africa

South African consumers need a minimum salary of between R6,000 and R10,000 to be considered for vehicle finance.

This range ensures that you can cover the monthly instalments without compromising your ability to meet other essential expenses such as maintenance, insurance, and fuel, which could double your monthly ownership budget.

The exact amount required can depend on various factors, however. These include the type of vehicle, the loan amount, and the lender’s specific criteria, as per popular automaker Mitsubishi.

“Having a regular salary is crucial to qualify for car finance in South Africa. Finance houses and financial institutions look for consistency and reliability in your income to ensure that you can make timely payments on your car loan,” said Mitsubishi.

“A regular salary indicates financial stability and reduces the risk for the lender.”

When determining whether your monthly income meets the minimum threshold, finance houses conduct a full credit assessment under the auspices of the National Credit Act to determine your credit history and current debt levels.

Additionally, they consider your disposable income after accounting for expenses like housing and utilities.

This will give an indication of your overall financial stability and, in turn, your capacity to timeously pay off a vehicle loan without overextending your finances.

“Lenders look for borrowers with a track record of timely payments and responsible credit usage. A strong credit history increases your chances of approval and may secure you better interest rates,” said Mitsubishi.

“Financial stability is also a key factor to qualify for car finance in South Africa. Demonstrating financial stability assures lenders that you can manage monthly instalments and other expenses without difficulty, making you a lower-risk borrower.”

The lending habits of major banks and finance houses also play a role as these institutions often have specific guidelines and thresholds for minimum income and credit scores.

They may look at your employment status to determine your suitability for a vehicle loan as being permanently employed generally provides more stability than being self-employed.

Additionally, your monthly income must be sufficient to cover the minimum loan amount set by the lender, which is different for every credit provider. This ensures you have the financial capacity to slowly pay off the loan over the agreed payment periods.

5 types of vehicle finance

According to Mitsubishi, there are five main types of vehicle finance in South Africa.

The first and most commonly used is traditional car loans, which qualify as a standard loan where the borrower receives a lump sum to purchase a vehicle and pays it back over a pre-determined period.

Traditional car loans typically attract higher monthly instalments than more tailor-made products, which can increase the overall cost of the vehicle, but can make budgeting easier as you know exactly how much you need to pay each month.

Balloon payments are another popular finance option. These contracts offer lower monthly payments with a larger lump sum, known as a balloon payment, due at the end of the loan term.

This structure can make the loan more affordable in the short term which could be beneficial for cash-strapped individuals in desperate need of transportation.

However, without careful budgeting over the course of the agreement, motorists could be met with a nasty surprise when the balloon payment becomes due.

Meanwhile, vehicle leasing is an up-and-coming finance product in South Africa and a good option for those who prefer not to own a vehicle outright or who may not qualify for normal finance.

Leasing allows consumers to rent a vehicle for an extended period with expenses such as the car payment, maintenance, and insurance all bundled into one monthly fee.

It provides benefits such as being able to upgrade to a newer model on a regular basis without taking a significant financial hit, though a major drawback is that at the end of the contract, you will have to hand the vehicle back and have nothing to show for several years of diligent payments.

An attractive choice for first-time car buyers can be graduate finance.

This is defined as a special finance plan for recent graduates with bespoke terms and conditions such as lower interest rates and flexible terms that help them start their financial journey in a responsible manner.

Lastly, we have self-employed finance, which once again is a tailored finance solution for self-employed individuals who might have irregular income streams.

Self-employed finance generally allows for flexible contract terms that help approved individuals manage their finances better.

“Understanding the minimum salary requirements and the car finance process in South Africa is essential for making informed decisions,” concludes Mitsubishi.

“Make sure to compare different offers and select the one that best fits your needs and financial situation.”