The Real Cost of Car Financing in 2025

Your car finance rate matters more than you think. On a typical R300,000 vehicle loan, the difference between a “good” rate (12%) and an “average” rate (16%) is R18,000 over five years – enough to cover your car insurance for three years. Yet most South Africans accept the first offer they receive, whether from their bank or the dealership. This costs them thousands unnecessarily

Car financing isn’t rocket science, but it does require understanding how the numbers work in your favor. With the prime rate currently sitting around 10.75%, down from highs of 11.75% in 2025, now might be one of the better times in recent years to secure vehicle financing.

Here’s what car finance actually costs right now:

• New cars: Interest rates from 8% to 15% depending on your credit profile
• Used cars: Typically 10% to 20%, with age and mileage affecting rates
• Loan terms: Usually 12 to 72 months, with most people choosing 60-72 months
• Typical financing amount: Around R410,000 for new vehicles according to WesBank data

The difference between a good rate and an average one can save you thousands. A “good” rate is typically about 2% above prime, which means you’re looking at roughly 12.75% if you qualify for favorable terms.

While car loans offer some of the most competitive rates due to the vehicle serving as collateral, some buyers consider personal loans when purchasing older vehicles or when they want to own the car outright from day one, though these typically come with higher interest rates due to being unsecured.

Fixed vs Variable: The Choice That Affects Your Budget

One decision that many car buyers don’t fully consider is whether to lock in a fixed rate or go with a variable rate that changes with market conditions.

Fixed Rate: Predictability Comes at a Price

With a fixed rate, your monthly payment stays exactly the same throughout your loan term. If you finance R300,000 at 13% fixed over 60 months, you’ll pay R6,854 every month without fail. This makes budgeting simple and protects you if interest rates rise.

The trade-off? Fixed rates are typically 1-2% higher than variable rates at the start. You’re paying extra for certainty.

Variable Rate: Lower Start, Uncertain Future

Variable rates usually begin lower than fixed rates, which means smaller monthly payments initially. But they move up and down with the prime rate. Recent rate cuts have saved the average car buyer about R51 monthly, but rates can go up just as easily.

Variable rates work well if you believe rates will stay stable or decline, or if you plan to pay off the loan quickly.

Qualifying for Car Finance: What Actually Matters

Lenders evaluate car finance applications differently than other loans because the vehicle serves as security. Here’s what they really care about:

Income Stability Trumps Amount

While most lenders want to see R8,000+ monthly income, they’re more interested in consistency. Someone earning R12,000 monthly for two years looks better than someone earning R20,000 for three months.

Employment requirements:

• Minimum 3-6 months in current position
• Payslips and bank statements showing regular deposits
• Self-employed applicants need 6-12 months of bank statements

Credit Score Opens Doors to Better Rates

Your credit score doesn’t just determine approval – it directly impacts your interest rate:

• Excellent (750+): Access to prime + 0.5% rates (around 11.25%)
• Good (650-749): Prime + 1% to 3% (11.75% to 13.75%)
• Fair (580-649): Prime + 3% to 5% (13.75% to 15.75%)
• Poor (below 580): Higher rates and larger deposit requirements

Borrowers with credit challenges shouldn’t assume car finance is out of reach. Bad credit loans principles apply to vehicle financing too – specialist lenders focus on your current ability to repay rather than past credit mistakes, though you may need a larger deposit and face higher interest rates.

Deposit Size Affects Everything

A larger deposit doesn’t just reduce your loan amount – it can improve your interest rate and loan terms. Most lenders prefer 10-20% deposits, but even 5% shows commitment and reduces their risk.

Real impact: On a R300,000 car, putting down R60,000 instead of R30,000 could reduce your interest rate by 0.5-1%, saving you R100+ monthly.

Smart Car Finance Strategies

The Pre-Approval Advantage

Apply for pre-approval 2-4 weeks before you plan to buy. This gives you time to improve your application if needed and ensures you’re shopping with real numbers, not estimates.

If you need immediate vehicle financing for a time-sensitive purchase opportunity, bridging loans can provide temporary funding while you arrange optimal long-term car finance, though this approach should only be used when absolutely necessary due to higher short-term costs.

Total Cost Focus

Don’t just compare monthly payments – calculate the total cost over the loan term. A R300,000 car financed at 12% over 72 months costs R378,000 in total. The same loan over 48 months costs R356,000 – you save R22,000 despite higher monthly payments.

The Trade-In Timing Game

If you have a trade-in, get independent valuations before visiting dealerships. Knowing your car’s real value prevents dealers from manipulating trade-in values to make their financing look more attractive.

Getting the Best Deal Through LoanHub24

Rather than spending weeks applying to different banks and dealership finance companies, LoanHub24 streamlines car finance shopping by connecting you with multiple lenders through one application.

Instead of filling out separate applications at different banks, submit your information once and receive offers from various lenders who compete for your business. Compare not just interest rates but total loan costs, terms, and conditions side by side. This transparency helps you make informed decisions based on complete information.

Get pre-approved before you shop, giving you the confidence to negotiate on price rather than getting distracted by monthly payment discussions at the dealership.