Need to improve your credit record so you can buy a car? This article gives you some helpful tips to do so.
In this day and age, many South Africans find it harder to make ends meet due to the rapid increase in the cost of living. Some are lucky to be able to save for a rainy day, and contribute towards retirement at the end of the month, while others are drowning in debt.
If you are drowning in debt, you are not alone. Many South African households are either under debt consolidation or debt counselling due to not being able to honour their agreements with their creditors. It is no doubt that going under debt review will negatively impact your credit score, thus making it difficult to apply for car finance.
Applying for any type of credit with a poor credit rating makes it difficult for you to be approved, especially when you apply for a large sum of money such as auto finance. So, if your monthly repayments have become too much to bear and you are at the brink of being blacklisted, you should seek help and apply for debt review.
What is a debt review?
Debt review is a debt rehabilitation programme for consumers who are unable to pay off their existing debt. The rehabilitation programme follows a strict process. A debt counsellor registered with the National Credit Regulator (NCR) will assess your outstanding debt.
The counsellor will then negotiate, on your behalf, with all your creditors to extend your agreements and reduce your interest rates. A new affordable repayment plan will be developed, and a new agreement with all your creditors will be formulated. Once a new repayment plan has been restructured, the client will only have to make one monthly payment to the distribution company, which will then be filtered to the necessary accounts.
How to get car financing when you’re under debt review
Your options as a person under debt review are limited, as you will no longer be able to receive any formal credit. When you are looking to finance your next car, you will either have to pay cash or look for other promising options. Ideally, you would want to settle all of your debt before getting into another credit agreement that could, potentially, end badly.
With that said, applying for finance through traditional banks is not the way to go. Thankfully, for a person who is under debt review, there are other options available for you.
When you are under debt review, it is not likely that you will have extra cash for disposal, so you will need to start saving if you can. You might be able to get a loan from a friend or relative, and although it won’t be a written agreement, it is still another incurred debt. If paying for your car in cash is not possible, the next option you should consider is a rent-to-buy vehicle process.
There are plenty of companies which offer car leasing agreements to people who are under debt review. The term is self-explanatory, meaning you pay a monthly rent for the use of a car. Rent to own companies can offer you a car leasing agreement for up to 60 months. At the end of that period, you can either choose to upgrade to another vehicle or arrange to buy the car for your own use.
Your credit profile
By now, you should know that your credit profile governs how well you are perceived by creditors and that it is the determining factor for your approval. Not being able to get any credit when you need it is frustrating, and that is why maintaining your profile is key.
When you are under debt review, you won’t be granted any further credit as you are over-indebted. The only way to be granted credit again is to pay off all of your existing debt completely. The first step to doing so is to be aware of your current score and take the steps to effectively improve it.
Ways to Improve your credit record / score:
1. Pay bills on time
When you borrow money from the lender, the first thing they will check is how diligent are you in repaying your debt. If you skip monthly payments, creditors will flag you as an unreliable borrower. Not paying your bills on time increased the chances of you not being granted credit.
2. Keep credit balances low
Try and utilise less than 50% of your revolving credit. Your credit utilisation ratio is important in calculating your overall score.
3. Avoid inquiries
Inquiries are made by the creditor when you apply for a loan. To avoid negatively impacting your credit profile, try and steer clear from applying for multiple credits.
4. Close all unused accounts
We all have accounts that we no longer use, but most of us don’t know that keeping these unused accounts “alive” impacts your profile. Most revolving accounts have administrative fees to keep them open. Ignoring an account simply means that you’re incurring fees without even realising. So, to ensure that these accounts don’t taint your profile, make sure you close them.
How to remove your name from debt review
The first step in removing your name from debt review is paying off all your debt. Once you have completed the process, you will have to collect your clearance certificate. Your councillor will have an obligation to inform the credit bureau.
After 21 working days, the credit bureau has to, by law, remove your name from the “under review tag” from your credit profile. It is your responsibility to ensure that your name is taken off the credit bureaus’ review list. To do so, make sure you check your credit profile for any relevant updates. If it hasn’t, you will need to call and find out if they have received your clearance certificate from your creditors.
If you are on a debt review programme but decided to cancel before the completion of the process, the same will apply. However, your profile will still display your default history for at least five years. If you wish to withdraw from the process, you will be showing the creditors that you are careless or reluctant to become debt-free and; thus, it will taint your record and no credit will be granted to you.
Being under debt review might seem like the end of the world, but if you are dedicated to becoming debt-free, the process will be worthwhile in the end. Take note that being under debt review means that you will not be able to apply for finance for your car. Instead, you will have to look for other promising options.
To be granted any form of credit, you need a positive credit score. This means that you will need to improve your credit record, maintain your credit profile and stay clear of debt. If you are already in debt, take steps in lowering it and avoid making more unnecessary debt. Ensure that you make your monthly repayments on time every month. Do this and before you know it, you’ll be able to plan ahead for your dream vehicle.
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