How Does Car Finance Work in South Africa?
By MoneyToday Team • Dec 2025 • 10 min read
Buying a car is one of the biggest financial decisions South Africans make. With the average new car price now exceeding R400,000, most buyers need vehicle finance to get behind the wheel.
This guide explains how car finance works in South Africa, the different options available, current interest rates, and how to secure the best deal for your situation.
Current rates: With the prime lending rate at 10.75% (as of mid-2025), car finance is more affordable than it was in 2024. A "good" rate is typically 2% above prime or better.
Car Finance Calculator
Types of Vehicle Finance in South Africa
There are three main ways to finance a vehicle in South Africa. Each has different implications for ownership, monthly payments, and flexibility.
1. Instalment Sale Agreement (Most Common)
The most popular option in South Africa. You own the car from day one, but the bank holds the vehicle as security until the loan is paid off.
- You own the vehicle immediately
- Can add a balloon to reduce payments
- Fixed or variable interest options
- • Vehicle is security (can be repossessed)
- • Early settlement may incur fees
- • Interest calculated on full amount
2. Financial Lease
You rent the vehicle from the finance company. At the end of the lease, you can buy the car for the residual value, return it, or refinance.
- Lower monthly payments
- VAT claimable for businesses
- Flexibility at end of term
- • You don't own the vehicle
- • Kilometre restrictions may apply
- • Must maintain to lender's standards
3. Rent-to-Own (for Those with Bad Credit)
Some dealerships offer this for buyers who can't qualify for traditional finance. You rent with an option to buy at the end.
- Easier approval
- Can build credit history
- • Much higher total cost
- • Often very high interest rates
- • Risk of losing all payments if you default
Understanding Balloon Payments
A balloon payment (also called a residual value) is a lump sum due at the end of your finance term. It reduces your monthly payments but means you'll owe a large amount at the end.
Example: R400,000 Car with 20% Balloon
- Finance Amount: R400,000
- Monthly Payment (60 mo @ 11%): ~R8,700
- Final Payment: R0
- Finance Amount: R400,000
- Monthly Payment (60 mo @ 11%): ~R7,400
- Final Balloon Payment: R80,000
Note: Interest is still calculated on the full R400,000, not R320,000. You save on monthly payments but pay more interest overall.
What Happens at the End?
Pay the balloon in cash and own the car outright
Refinance the balloon (new loan for 12-24 months)
Trade in the car and use value to settle balloon
Fixed vs Variable Interest Rates
Fixed Rate
Your interest rate stays the same for the entire loan term, regardless of what happens to the prime rate.
- Predictable monthly payments
- Protected if rates rise
- • Usually 0.5-1% higher than variable
- • Miss out if rates fall
Variable (Linked) Rate
Your rate moves with the prime lending rate. If the Reserve Bank cuts rates, your payment decreases.
- Benefit from rate cuts
- Usually starts lower
- • Payments can increase unexpectedly
- • Harder to budget
Current outlook (2025): With the SARB cutting rates and considering a stricter 3% inflation target, many economists expect rates to continue falling. Variable rates may be advantageous in the current cycle.
How to Get Approved for Car Finance
Check Your Credit Score
Get your free credit report from ClearScore or check with TransUnion. A score above 650 is generally considered "good" for vehicle finance.
Gather Your Documents
ID document, proof of income (3 months payslips), bank statements (3 months), proof of residence. Self-employed? You'll need financials or tax returns.
Save for a Deposit
While 0% deposit deals exist, a 10-20% deposit improves your approval chances and gets you a better interest rate. It also means you're less likely to be underwater.
Get Pre-Approved
Apply for pre-approval through WesBank, MFC, or your bank before visiting dealerships. This gives you negotiating power and you'll know your budget.
Compare Multiple Offers
Don't just accept the dealer's finance. Compare with at least 3 lenders. A 1% difference in interest rate on a R400,000 loan over 60 months is about R12,000.
Who Offers Vehicle Finance in South Africa?
| Lender | Best For | Pre-Approval |
|---|---|---|
| WesBank | Largest vehicle finance provider, wide dealer network | Yes |
| MFC (Nedbank) | Good rates for existing Nedbank clients | Yes |
| Absa Vehicle Finance | Special manufacturer deals (up to 9% below prime) | Yes |
| Standard Bank | Competitive rates for private sales | Yes |
| FNB | eBucks rewards on repayments | Yes |
| Capitec | Simpler process, good for used cars | Yes |
Frequently Asked Questions
What credit score do I need for car finance?
Most banks prefer a score of 650+, but some lenders work with scores as low as 580. Below 580, you'll likely face higher rates or need a larger deposit. WesBank and MFC have options for lower credit scores.
Can I get car finance if I'm self-employed?
Yes, but you'll need to provide more documentation: 6-12 months bank statements, tax returns, and possibly audited financials. Approval may take longer than for salaried applicants.
Should I take a balloon payment?
Only if you have a clear plan to pay it off. WesBank recommends a straight finance deal with a 10% deposit and the shortest term you can afford. Balloons increase your total interest paid and risk being underwater.
Can I settle my car loan early?
Yes. Under the National Credit Act, you can settle early and are entitled to a rebate on interest. However, there may be an early settlement fee (usually 1-2 months' interest). Always request a settlement quote first.
What happens if I can't make my payments?
Contact your lender immediately. Options include payment holidays, restructuring, or voluntary surrender. Don't ignore it – the lender can repossess the vehicle after 20 business days of default, and you'll still owe any shortfall.
Is it better to buy new or used?
Used cars cost less but attract higher interest rates (12-18% vs 9-13%). New cars depreciate 15-20% in year one. A 1-2 year old "demo" or pre-owned vehicle often offers the best value – still under warranty but past the steepest depreciation.
Key Takeaways
- Shop around: Compare at least 3 lenders. A 1% rate difference can save you thousands.
- Save a deposit: 10-20% gets you better rates and reduces the risk of being underwater.
- Avoid long terms: 72+ month terms cost significantly more in interest.
- Be cautious with balloons: They lower payments but increase total cost and risk.
- Get pre-approved: Know your budget before visiting dealerships.