A used car for sale.

  • Capitec quietly launched car loans for older used cars before SA went into lockdown – and plans to expand that business quickly after lockdown ends.
  • Its "purpose lending" does not use the vehicle as security for the loan, and covers older cars; its first loan was for a 10-year-old vehicle.
  • Not everyone is a fan of unsecured credit, though, or of Capitec's approach.
  • For more stories go to www.BusinessInsider.co.za.

Capitec now offers car loans for older used cars typically not financed by other institutions – without using the car itself as security.

For now those loans are only available via the online used car dealer WeBuyCars, but Capitec aims to roll out the concept to an additional 80 dealerships, post lockdown, over the next year.

And that, some believe, could spell trouble for customers not sufficiently wary of unsecured lending.

Capitec quietly launched the concept at a Cape Town branch of WeBuyCars, shortly before South Africa’s national lockdown, and granted nine car loans in two weeks. 

WeBuyCars is the largest single seller of vehicles in the country – and less than half of its sales are currently financed through traditional secured credit.

The car loans are in line with Capitec’s "purpose lending" model, which offers unsecured credit – for specific items – at rates comparable to those of secure credit, says Francois Viviers, executive of marketing and communications at Capitec.

The bank's first car-loan client received a loan of R189,950, at a rate of 16.7%, for the purchase of a 10-year-old VW Touareg.

That is an interest rate almost double the prime lending rate at the time.

 The bank then charges a once-off fixed initiation fee of “not more” than R1,207.50, and a monthly service fee of R69.

Capitec says it is targeting a different sector to many other car financiers by offering loans for used cars that are slightly older, but still in good condition.

Certifed financial planner Gregg Sneddon is among those not convinced, and says it sounds like Capitec is dressing up unsecured loans in order to make them look more appealing.

“The bank is lending you money without holding anything in exchange - it’s an unsecured loan,” says Sneddon. “And that’s why the interest rate is higher than if you went normal secured bank loan.”

South Africa saw a boom in unsecured loans in recent years – but by September last year, 40% of these borrowers were in default.

“I think it’s incredibly risky, because it just exacerbates the debt problem, and encourages people to spend money that they don’t have,” says Sneddon.

It’s also unclear what happens in the event that the borrower defaults on the unsecured car loan, but Viviers says Capitec’s “purpose-driven” loan won’t take the vehicle as security.

“We offer these clients a solution that meets their needs at a good interest rate and low fees, and that does not take the vehicle as security,” says Viviers.

Sneddon says there several possible complications – including if the borrower sells the car before it’s fully paid off – that will have to be revealed in the fine print.

“Unless there’s something that says in the event that you if default Capitec will come after the car, what are they going to come after? It’s risky – and that’s why the interest rates are higher.”

Capitec however sees this initiative as a way of growing a new sector in the car financing market. 

“Vehicles that are in an excellent condition but that are older than 5 or 6 years may not qualify for traditional secured vehicle finance,” says Viviers. 

At the same time the bank is piloting an online partnership with MotoData, a finance gateway for vehicle purchases. 

Viviers says this will allow the bank to extend purpose lending to various dealerships across South Africa.

But Sneddon has a warning for Capitec’s potential clients.

“Unsecured money has got people into terrible situations, and I don’t think this will be any different.”

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