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Johannesburg - Consumers hoping to obtain vehicle finance should be aware of amendments to the National Credit Act (NCA) and National Credit Regulations, including Affordability Assessment Regulations, as published on March 13 2015.
These are changing the way financial institutions must assess and determine affordability, said Douw Leadley of MFC, a division of Nedbank.
READ: Earning well, yet no vehicle finance
He points out the main impact of these amendments:
- An affordability test must be done using a prescribed table (similar to the tax table) that is designed through means testing what the minimum level of expenses should be in a certain salary band;
- This results in the higher of declared expenses or the minimum as per the table being used in order to eliminate consumers who are under-declaring living expenses. The affordability test will also take monthly debt repayments into account;
- Financial institutions require three months’ payslips or three months’ bank statements to prove consistent income;
- The transactions must be concluded within seven working days as a bureau update is required after seven days, to eliminate multiple loans in a short period of time;
- If the applicant is married in community of property, the spouse's consent is required. In the past the main debtor could just declare that the spouse is aware and informed of the purchase.
READ: Fresh out of debt review, needing car finance
Tips for consumers:
- Consider what you can afford in a monthly instalment on a vehicle;
- Compile a list of all your living expenses - the higher of your declared expenses and/or prescribed by the NCA would be used - in other words, do not under-declare;
- Add all your contractual debt. Finance institutions can access your debt obligations including any personal loans through the credit bureau - in other words, your monthly instalments;
- Deduct any debt you will be settling - like a vehicle you are trading in to acquire the new one;
- The net result of the above should be a surplus (termed positive, cash flow). If no positive cash flow is evident, the finance provider cannot grant credit;
If expenses are shared with a partner or spouse, the finance institutions need income and expenditure of both parties to determine positive cash flow.
ALSO READ: Car finance and your credit rating
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