Here's what to do if you can’t make your monthly car repayments
With the loss of jobs and income caused by the Covid-19 lockdown, many people face the prospect of not being able to make their car repayments.
A number of banks have implemented payment relief on financed vehicles to temporarily take the pressure off clients. However, financial potholes may lie in wait further down the road, with the pandemic expected to peak only in August or September, according to some reports.
Even if you are in default, there is still hope of avoiding having the vehicle repossessed. It is best to contact your bank and find out how you can reinstate the loan. In general, it means making up all the missed payments or arranging to integrate the outstanding amount into the total settlement value.
Legal action is generally taken once a client misses three payments. If your vehicle does get repossessed it is usually sold through an auction where vehicles often sell for a fraction of their resale value. If this happens, you will owe the difference.
We reached out to several banks to find out what happens with defaults on car instalments once the Covid-19 “payment holidays” expire:
“Repossessing a vehicle is the last step we take after exhausting all other avenues. When we repossess a vehicle it is a lose-lose situation — the client loses and the bank loses,” says Jana Coetzer, business support manager for MFC, the vehicle financing division of Nedbank.
“We encourage clients to proactively contact us and discuss their financial situation. We will then, together with the client, investigate all the options available to assist them. If a client in financial stress provides proof of future income probability, MFC will assess options to minimise the instalment or restructure the arrears so the client can be kept up to date and given some breathing space.”
The initial options are to pay back the arrears in a lump sum, over three months or at the end of the term.
If the client has no apparent confirmed likelihood of income in the near future and therefore won’t be able to pay their next few instalments, MFC explores the option of an assisted sale. This is where the bank assists clients to work through a reputable motor dealership to try to sell their car for a better price than an auction would yield. If the client is offered a higher price for their vehicle, the shortfall on the client’s account is less.
“If the client has missed three payments and has not brought their situation to our attention, accounting and regulatory standards render that loan as ‘non-performing’ and legal proceedings need to begin,” says Coetzer.
“This starts off by obtaining a court order for repossession of the vehicle. Even in these legal proceedings, once we have the documents allowing us to secure ownership, we try to encourage the client to help us with a ‘voluntary surrender’ and thereby avoid a sheriff visit and asset retrieval process.
“We strongly encourage clients to engage with us as we can explore solutions to assist them. Furthermore, during the process we may encourage clients to consider applying for debt counselling debt relief as prescribed in the National Credit Act if this may assist them to pay off their car or their shortfall.”
MFC’s website gives some information for clients in distress:
Lebogang Gaoaketse, head of marketing and communication at WesBank, says repossession is an act of last resort in the collections process.
“The general rule of thumb is that being behind with three instalments qualifies you for repossession action. Having said that, we have many customers who have accounts that are more than three instalments in arrears where arrangements to pay them off were negotiated and are in place. In other instances, we encounter customers who are up to date, electing to give their assets up due to affordability.”
The communication process is as follows:
Extensive telephonic attempts are made to make contact with the customer. Generally, arrangements are concluded to pay off the arrears depending on the customer’s affordability. WesBank has arrangements in place that extend to even longer than six months;
Should deliberations fail, the last option is repossession by either voluntary surrender or the legal option.
If a customer refuses the voluntary surrender option the bank gets a court order that empowers the sheriff of the court to remove the asset from the customer’s possession.
WesBank has devised payment-relief plans from April 1 to June 30 to assist customers affected by Covid-19, with the type of relief dependent on the type of product each customer holds. The bank has been inundated with requests for assistance, which has led to delays in getting to each customer.
“It is unfortunate that there have been some delays in responding to all of our customers and for that we would like to apologise. Amendments to the system have been made to ensure a quicker turnaround time for responses”, says Ghana Msibi, WesBank Motor CEO.
In response to the Covid-19 pandemic, Absa recently launched a payment relief programme that gives 85% of its customers the opportunity to either continue paying their instalments, if they are in a position to do so, or to defer payments for a period of three months.
Faisal Mkhize, managing executive: Absa Vehicle and Asset Finance (AVAF) says the bank has the ability to craft personalised credit solutions for customers in financial difficulty, which is based on each customer’s unique needs and in line with the rules set out in the National Credit Act.
“All our contracts allow customers who are up to date to have a one-month payment holiday upon request. Thereafter, we have multiple short- and long-term plans available to assist customers in need. We urge all customers to reach out to us proactively when they run into financial difficulty. We can then assess the situation and propose an appropriate solution,” he says.