What is Car Loans?
A car loan (also known as an automobile loan, or auto loan) is a sum of money a consumer borrows in order to purchase a car. Generally speaking a loan is an amount of money that is lent to an individual, a business, or another entity.
Car Loans In South Africa
So you are just about buying your own private car- either a brand new or used car, but you don’t have the cash to pay the entire cost of the car all at once. Now, you are stuck wondering how I would ever own my car in South Africa since I can’t pay for it once and for all.
Not to worry, an auto loan is your next best option. Probably you have heard about auto-loan before, and you are wondering how it works in South Africa, you are on the right page. In this article, I will walk you through how auto loans work in South Africa.
Terms Involved In Car Loan
Car loan, also called Car finance or vehicle finance, is the sum of money lent out to you to finance the purchase of your car. You will have to pay back the money lent to you over a period of time. To understand how auto loan works in South Africa, you need to understand these terms used in auto-finance:
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The Lender
This is the institution or organization who offers to lend you money so that you can buy a car. Only borrow from an institution that is a registered credit and financial services provider. The National Credit Act protects the credit market in South Africa by regulating lenders with strict rules.
Car loan amount
The car loan amount, or principal is the amount of money (i.e credit) given to you by the lender. This amount usually covers the overall cost of the car after the down payment has been deducted.
Admin and Initiation Fees
Most car loans have admin and initiation fees included. Either as a lump sum at the start, or as part of your monthly payment
Interest rate
In South Africa, two interest rate options are usually available. It’s best to choose that which suits more. There are;
- Fixed interate rate which is remains the same throughout the entire duration of the loan repayment term.
- Linked Interest rate, also called variable interest rate. This is linked to the national prime rate which is unstable. It can move up and down as the prime rate goes up or down. Thus, you might end up paying an exorbitant amount or you may be lucky to pay low interest.
Loan deposit/down payment
Usually, before a car loan is given to you, you will be required to pay a percent (often between 15-30%) of the total cost of the car. This shows your commitment to own the car and fully pay the loan.
Loan term/ period
This is the time duration required of you to pay the loan together with the Interest. The loan term can span for months or even years. Bear in mind that a shorter loan term means a more expensive monthly payment while a longer loan term implies small monthly payment. However, you pay much more than the actual loan when the loan term is too long.
Monthly installments
Monthly installment is the amount of money you pay monthly to clear the loan.
Balloon payment
This is a part of the loan you need to repay in one big payment at the end of the loan. Not all car loans have balloon payment, so you can choose the option that works for you. For instance, if a car costs R500,000, a balloon payment of R80,000 might be placed on it.
This means a loan of R420,000 will be given to you on which interest will be charged. However, at the end of the monthly installment, you need to pay R80,000 at once, otherwise the car may be withdrawn from you.
Documents You Need To Take A Car Loan In South Africa
Once you’ve chosen your vehicle, be sure that you understand all the available options, so that you can choose the option that best suits you.
To be eligible to submit an application for a car/auto loan you will need to be:
- be 18 years old or older.
- be a permanently employed salaried individual, earning a minimum salary of R6500 pm.
- have a valid South African drivers licence with no endorsements.
- be a South African citizen or permanent resident; and
- have a good credit history.
Documents you’ll need to complete your application
- A copy of your valid South African identity card/document
- A copy of the front and back of your South African drivers licence
- Proof of your income, not older than 3 months
- Salaried individuals – latest 3 months payslips
- Commission earners – Latest 3 months payslips and latest 3 months’ stamped bank statements. No internet bank statements will be accepted
- Proof of residence, such as a utility bill, not older than 3 months
Also Check>>> What Documents Do I Need To Buy A Car In South Africa
Benefits Of Taking Car Loan In South Africa
-A quick way to get your dream car: Instead of wait for years before you can buy your car, with an auto loan, it becomes easier and faster to buy that car you have always wanted.
-Build your credit profile: Once you take an auto loan, there is a fixed rate in which you are supposed to pay back. If you are able to pay back the money in due time, you immediately increase your credit profile.
.-Securing an auto loan is not so difficult: There are various institutions offering auto loans in South Africa. This increases competition, and so you have a wide range of options to choose from with different auto loan schemes and repayment options.
Which bank is best for car finance in South Africa?
Here’s a list of the best car loan providers in South Africa.
Wesbank.
FNB.
Absa.
Standard Bank.
Motor Finance Corporation.
What is the best way to finance a car in South Africa?
A mortgage is often the best way to finance a vehicle. The interest rate on your home loan is lower than that of most car loans, and by simply restructuring this existing loan you avoid all the work involved with applying for a new loan.
What is a reasonable interest rate for a car loan in South Africa?
Based on data supplied by the South Africa Reserve Bank (SARB) which tracks the average interest rate charged on installment sales agreements (basically loan agreements to buy cars, furniture etc), contracts signed by South Africans with credit suppliers had an average interest rate of 11.17% in September 2025, 11.37%.
What is a good interest rate on a car South Africa?
Finally, the cars are financed over five years (60 months) at an annual interest rate of 9%.
The cars you can afford with your salary in South Africa .
| PRICE OF CAR | MONTHLY REPAYMENT | GROSS MONTHLY SALARY REQUIRED |
|---|---|---|
| R300 000 | R6 321.57 | R25 286 |
| R500 000 | R10 473.24 | R41 892 |
| R750 000 | R15 662.83 | R62 651 |
| R1 000 000 | R20 852.42 | R83 409 |