What Is The Minimum Deposit To Put Down For A New Car In South Africa?

What Is The Minimum Deposit To Put Down For A New Car In South Africa?

motomatch / 9 May 2022

A minimum deposit is the amount of money provided to the car company for purchasing the vehicle's ownership. When you put down a minimum deposit for the car, it means you are interested in buying the car and want to put it on hold.

However, just like any other buyer, you must have a lot of questions regarding the minimum money deposit on a new car. To help you, we have created a guide that covers:

  • Benefits of putting down deposits for a new car
  • What is the minimum deposit for buying a car?
  • Relationship between deposits and money-saving
  • Minimum expenditure for a car purchase in South Africa
  • Minimum salary for a new car in South Africa

So, let's begin:

Benefits of Minimum Deposit When Buying a New Car in South Africa

One of the many benefits of a deposit when buying a new car is less interest. Note that if you are putting down a generous amount as a deposit, you wouldn't have to take larger loans from the bank. This will result in lower interest to meet the loan payment. 

Besides this, deposits offer other benefits like-

  • Lesser Monthly Payments: As mentioned earlier, deposits can reduce your payable loan amounts. When the loan amount is lower, you will eventually have to pay lesser monthly payments. 

  • Ensures Credibility to the Bank: If you put some amount as a deposit, the bank will consider you reliable. That's because the deposit shows that you wouldn't require the full amount to buy the car, but only some funds that you are falling short of. It is also comparatively less risky for the bank/lender as you are demonstrating to them your good saving habits. 

  • Quick Bank Approval: As the bank gains your trust due to the deposit, they wouldn't delay the loan approval. In simple terms, putting in some deposits can help you get instant loan approvals from the bank. 

  • Better Rates: Deposits can result in greater purchasing power. It can give you more choices of lenders. Also, it can encourage lenders to offer you better rates on loans. 

  • Saves any Future Hassle: Most cars lose their 20-25% value by the time they reach their first anniversary. In such a case, if you deposit less or no money, you will eventually owe more than your car price. That's because other costs like sales tax are going to add up and surge the amount. 

But, if you put down a generous down payment, the extra amount would balance out the costs. It will also maintain the equity of your car. 

Can a Car Deposit Save Money?

Technically, yes. One of the most typical questions that people ask is how to get the best deal on your car? The answer is through a car deposit. The more money you deposit, the better deals you get. 

Moreover, it cuts down your monthly payments and interest rates. This means you won’t face financial hardships or won’t need to overspend to meet your car loans. This eventually saves you money. 

What is the Minimum Down Payment On a Car?

There is no hard-and-fast rule for minimum deposits when buying a new car in South Africa. The general rule of thumb is to make a minimum deposit of 20% if it's a new car. Similarly, if you are buying an old or used car, you can put down a minimum deposit of 10%. 

So, the amount depends on the type of car you are buying. The rest of the amount is financed by the lender. As per the size of the loan, some financial institutions can provide you with full 100% finance for the car amount.

But, we recommend depositing some amount for your car purchase. That's because it offers you more flexibility and prevents the hassle of paying fees or interest charges. While taking car loans, make sure to ask your lenders about the loan period and approximate payment for your idea.

How Much Money Should I Spend on a New Car Purchase?

Before answering this question, let's learn about the average salary of working professionals in South Africa. As per the statistics, a person working in South Africa earns nearly 31,100 ZAR every month. Their lowest average is 7,880 ZAR, and the highest average is around 139,000 ZAR. Note that this average salary covers everything from housing to transport.

Salaries differ from profession to profession. Besides that, this is just a statistical demonstration. No wonder the real numbers may differ from the estimate. However, let's go ahead with what the statistics say, i.e. 31,100 ZAR per month. 

Now, as per South African Banks, you shouldn't be spending more than 30% of your yearly salary on a new car purchase. Similarly, for monthly salaries, it shouldn't be more than 10-25%. However, it's always recommended to follow the minimum benchmark, i.e. 10% of your monthly salary on a new car purchase. 

So, 10% of the 31,000 ZAR equals 3100 ZAR. If your salary is 31,000 or nearby, you will be allocating 3100 ZAR for a vehicle purchase. In the case of 25% of your monthly salary, the amount will be 7750 ZAR. Note that this percentage is applied to the full vehicle expense. This includes

  • Money for Fuel
  • Vehicle Instalments
  • Insurance Premiums

Regardless of the loan amount you get, most experts would suggest you not go overboard with your finances. The pandemic is a clear example of how you could encounter the unexpected. So, keep such things in mind before making a new car purchase. 

What is the Minimum Salary to Qualify for Car Finance in South Africa?

There is no such minimum salary to qualify for car finance in South Africa. Lenders look for certain aspects like your monthly living costs and compare them with your monthly income. Based on this analysis, they interpret whether you are capable enough to afford loan payments. 

They also look for other factors like multiple incomes, credit card debts, loan debts, or any financial dependence of a person on you. Simply put, lenders estimate your loans by monitoring your situation. 

Lenders also consider your debt-to-income ratio when providing finance for your new car purchase. Debt-to-income ratio is the percentage of monthly gross income that goes towards paying the debt. For a car loan, an ideal Debt-to-income ratio should be around 20%. It shouldn't be more than 40% else, you may not qualify for the loan. 

To get a fair idea of the minimum monthly salary (and other requirements) for a car purchase, check out the criteria that are followed by some renowned finance houses:

Age and Qualification Criteria

For a finance agreement, you must be 18 years or older. Some finance houses may also ask you to have a degree or higher diploma that you must have secured within three years of the finance application. 

Monthly Salary and Employment

Finance houses may only consider you if you are permanently employed with a decent salary. The minimum monthly amount differs from lender to lender. Some may offer you the finance with 5000 ZAR monthly, while others may ask for 7500 ZAR monthly or more!

Others

They may also ask for:

  • A valid driving license
  • Good credit record
  • Proof of employment
  • South African citizenship or permanent residence, etc.

This is just a rough idea of the requirements to qualify for car finance in South Africa. Make sure to read all the details of the finance house that you are considering for the loan. If you have any doubts, talk to their customer care executives for assistance. 

FAQS

What is a Down Payment On a Car? 

In a car loan, a car down payment is the part of the car price that you pay from your savings. The remaining amount is paid by the bank/lender. 

What Does a Car Down Payment Go Towards?

On obtaining a car loan, your car down payment and monthly payment goes towards the entire purchase price of the car. Once you meet the loan term and loan amount, the vehicle is yours!

Which One Out of Small or Large Down Payments On Your Car is the Best?

While a small down payment may feel feasible as you will have more cash in your pocket, it's best to put down large down payments on a car. That's because it ensures more equity and a quick loan payoff. 

Things (Tips) to Keep in Mind Before Purchasing a New Car

  • Fix a reasonable budget. It's recommended to choose a car that costs less than 5% of your monthly budget.
  • Always perform thorough research (MSRPs, invoice prices, etc.)
  • Stay away from any add ons that increase the car cost
  • Buy a car while maintaining your finances
  • Check the car resale value

Decided on your dream car already? Make your deposits and buy it today! Hopefully, this article has answered all your query on car finance with deposit in South Africa.