Although interest rates have stabilised, a weak economy and high levels of debt mean South Africans remain financially vulnerable. If you’re struggling with car repayments and are at risk of having your car repossessed, what steps can you take?

When you drive your dream car off the dealership lot, the last thing on your mind is what may happen if you can no longer afford to pay for it.

However, this is a reality for many South Africans, especially if they have bought a bigger or more flashy car than they can comfortably afford.

“People are emotional when buying a car, which means they don’t always make rational choices,” says Jamie Surkont, co-founder and CEO of fintech auto business getWorth.

Some people even lie about their financial circumstances to make sure they qualify for the car they want.

“The National Credit Act protects consumers against themselves by having them fill in an affordability assessment so credit providers can determine if they qualify for credit,” says Jaco Hamman, a partner at Hahn & Hahn Attorneys.

“The problem is that people may not be truthful – or they may overestimate their own means in the future. For example, they may say, ‘I’ll buy the car I want now and when I get an increase in two months’ time the payment will be more manageable.’”

However, because life is full of unexpected events – retrenchment, a medical emergency, expensive repairs – it’s worth considering what to do if you can’t keep up with your monthly repayments and become at risk of having your car repossessed.

When can your car be repossessed?

Theoretically, your car can be repossessed if you’ve skipped just one payment, says Hamman. However, the timing of repossession differs, and this is not always based on the months a consumer is in arrears, says Dumisani Zwane, executive: MFC Channel, MFC (a division of Nedbank).

In addition, there is a strict legal process that must be followed, which is set out in Sections 127 and 129 of the National Credit Act of 2005. This means you have time to try to resolve the matter.

“Consumers don’t always know such a process exists, particularly if they have accessed credit from a lender other than a Tier 1 financial institution, such as a bank or financial institution that offers vehicle loans,” says Surkont.

“They may therefore surrender their car to a debt collector who arrives at their home and pressures them into signing a document saying they’re returning the car of their own free will as they can’t afford to pay.”

Hamman points out that people are also not necessarily aware that only the sheriff or deputy sheriff of the court can repossess a car – and that’s only after the correct legal process has been followed.

“If the correct legal process isn’t followed to the letter, a repossession is illegal, and the consumer will have legal recourse.”

Options to avoid having your car repossessed

If you’re struggling to make your car repayments but want to avoid having your car repossessed, there are a number of steps you can take.

Refinance your loan

The best option is to try to refinance your loan, since banks are not anxious to repossess vehicles or lose lifetime customers, says Surkont.

Zwane says banks will always try to assist consumers according to their instalment agreement and the National Credit Act, making arrangements or discussing a formal restructuring – that is, a payment plan – if they meet the bank’s criteria.

“The bank is always prepared to discuss the matter with the consumer to determine if an amicable resolution is possible,” notes Zwane.

A new loan may alter the repayment terms of your debt. A short-term payment plan should allow you to pay off what you owe more rapidly, but a long-term plan extends the terms of your contract. While this could mean a lower monthly premium, you may be paying more interest in the long run.

You can refinance with another financier if you’re able to negotiate a lower interest rate with them. If you have a large balloon payment at the end of the finance term, you can refinance this, too.

“Bear in mind, though, that if you don’t have adequate insurance, and the car is written off, you will still be liable for the balance,” says Hamman.

Return the car to your financier

If you haven’t skipped a payment but are in financial trouble, you can voluntarily surrender the vehicle to your financier. The emphasis is on ‘voluntary’, however – you can’t be forced or coerced into returning the vehicle.

Keep in mind that even if you have surrendered the vehicle, you are still liable for any shortfall between what the bank can sell the car for and what you owe on the loan.

You need to inform your financer in writing of your intention to terminate the loan agreement, and you’ll need to return the vehicle within five days.

Ask your financier to value the vehicle prior to auction. “Note that you’re entitled to reject the amount offered and sell the car privately,” says Hamman. “However, this option is only available to you if you haven’t yet skipped a payment.”

You can also consider trading in your car and obtaining a loan for a cheaper car. If you still owe more than the car is worth, you will need to factor the difference into the new loan, and this may not be an option if the monthly premiums will also be unaffordable.

Sell your vehicle

You can sell your vehicle on auction, privately, or through a reputable car dealer or online platform. Most financial institutions offering car loans have assisted-sales programmes that may help you sell your vehicle to approved buyers or dealerships.

“A dealership will definitely offer you more than you’d get at a sheriff’s auction, where a buyer can’t examine a car for faults or have it checked out,” Hamman says.

Note that selling your vehicle may not provide you with enough funds to settle your debt. For example, if you owe your financier R400,000 and you sell your car for R200,000, you’ll still be contractually obliged to pay the financier the remaining R200,000.

Opt for debt consolidation

A consolidation loan combines multiple debts you may have into one single, affordable loan. Make sure that the amount gives you enough cash to cover any arrears, otherwise your financier may still be entitled to repossess the vehicle.

Enter into debt counselling

If you miss a payment and know there’s no chance of repaying what you owe, you have the right to enter into debt counselling.

Always opt for a reputable, registered debt counsellor – review the list on the National Credit Regulator’s website. Debt counselling protects you against your creditors during the first 60 working days, during which time your debt counsellor will negotiate repayment terms.

Vehicle repossession: the legal process

1. If you default, you will be in breach of your credit agreement, and will receive a Section 129 letter of demand from your financier. This will advise you there are several options available to you, including making a plan to repay what you owe, entering into debt counselling if overindebted, or approaching the Ombudsman for Banking Services to help resolve the issue (note that the ombud now falls under the auspices of the National Financial Ombud Scheme). “Don’t ignore this letter, and make sure the amount owing is correctly stated,” says Hamman.
2. If you have been in default for at least 20 days and have not chosen to surrender your car to your financier, the sheriff of the court will serve you with a summons. You have ten business days to respond. It’s a good idea to hire a legal representative at this point.
3. If you don’t defend the case, a default judgment will follow, which will entitle your financier to have a warrant of execution issued, allowing for vehicle repossession. You can overturn a judgment in exceptional circumstances, but you can nevertheless still try to renegotiate payment terms. A default judgment reflects with the credit bureaus and will negatively affect your credit score.
4. The sheriff of the court will repossess your vehicle and keep it in storage until it is sold. You will be liable for the sheriff’s fees and the fees of the attorney representing the plaintiff (the bank or finance house).

Do you have a complaint about a lender? Contact the National Credit Regulator on 0860 627 627, WhatsApp on 067 277 0124, or email complaints@ncr.org.za. You can also contact the National Financial Ombud Scheme.

This article first appeared in City Press.