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The possibility of car repossessions haunts many South Africans who have fallen behind on car payments.
While the realisation that you cannot afford your car payments is extremely scary, we’re here to guide you through your available options.
What is car repossession?
When you sign a loan agreement, you commit to a contract. This contract gives your credit provider the rights to your vehicle until it’s paid off. Failing to fulfill your obligations gives your credit provider the right to take back the vehicle.
Usually, the car is repossessed if you’re about 3 months in arrears with your payments. Your credit provider may obtain a court order to repossess the car or take it through voluntary surrender.
Repossession versus voluntary surrender
Repossession is when your credit provider takes your car because you’ve failed to keep up with your payments. Before the car is taken, the credit provider has, in most cases, warned that payments are not up to date.
Voluntary surrender occurs when you let your credit provider know that you can no longer afford payments on the car and agree to give up the car. Although you still lose the car, surrendering it voluntarily is less stressful than a repossession.
Both repossession and voluntary surrender will affect your credit score negatively. But, voluntary surrender is often seen as more favourable when it comes to your credit score because it shows that you chose to communicate and cooperate with your credit provider – as opposed to waiting for your creditor to take action against you.
Repossessed car auction
Once the car is taken, it is safely stored for a specified amount of time. You are given a final opportunity to catch up on your payments as well as pay all administrative and legal costs.
If you cannot settle the amount, the car is put up on public auction. Once the car is sold to the highest bidder, you are liable for any amount that falls short of the car trade book value. For example, if the car’s trade book value is R50 000 and the highest offer on the day of the auction is R30 000, you are liable for the R20 000 difference.
Settling the deficiency
If you’re unable to afford your monthly car payments, paying a lump sum is likely not feasible. The credit provider may repossess other assets you own to cover the shortfall, including appliances, furniture, trailers, etc.
How to avoid car repossession?
Before your car gets repossessed, your credit provider will send a representative to meet with you to make arrangements for the amount you owe. If you cannot afford to pay back the amount, your car will be taken. Here are a few ways you can mitigate this:
1. Speak to your credit provider
A proactive approach may be the best way to avoid repossession. Try to negotiate an alternative arrangement, such as selling your vehicle yourself or surrendering it.
2. Settle the outstanding amount
This is the ideal option. However, you may find yourself in this very situation because you can’t afford your payments. If you are able to settle the outstanding amount, do so to avoid repossession.
3. Reinstate the loan
Ask your credit provider if you can reinstate the loan. This way, your missed payments will be integrated into the settlement value. Keep in mind that you may pay more on interest fees in the long run.
4. Apply for debt review
If you’re struggling to make ends meet, debt review may be the best solution for you. Debt review is a legal process introduced by the National Credit Act to prevent consumers from being blacklisted and having to deal with the consequences thereof.
If you apply for debt review and your application is successful, a National Credit Regulator (NCR) registered debt counsellor will assist you with:
Restructuring your debt so you only pay one affordable monthly debt repayment
Communication with your credit providers
Negotiating with credit providers for reduced payments
Legal protection
Debt review protects you from losing your valuable assets, such as your car, provided you apply before it’s too late. As soon as you apply for Debt Review at BayClear Financial Solutions, your creditors are notified that you are under debt review within 5 days. They must, by law, communicate with us and stop all communication with you.