How to avoid having your car repossessed

Many vehicle owners at one point or another find themselves unable to meet their monthly car repayments, due to interest rate increases and other financial pressures. If you’ve missed some instalments, you may be worried that your car will be repossessed.

We consider the steps you can take to safeguard your vehicle, and the importance of being proactive when you are in arrears.

Tip: Drowning in debt? Why not consider debt consolidation?

When can your car be repossessed?

Your car can be repossessed if you have breached the terms of your vehicle loan agreement. This usually happens when you default on your repayments.

A bank is entitled to repossess a car after one missed payment. However, because the national credit act (NCA) obliges banks to follow a specific legal process, a repossession will not happen immediately.

It’s therefore a good idea to try to repay what’s owed, says Jaco Hamman, a partner at Hahn & Hahn Attorneys.

When you default on your debt, you will receive a letter of demand, or Section 129, from your credit provider, requesting payment and advising you of your options.

“These include debt counselling, alternative dispute resolution such as mediation and arbitration, or approaching the Consumer Goods and Services Ombud,” says Hamman.

If you have defaulted on your debt for at least 20 days, the sheriff of the magistrate’s court will serve you with a summons. You have ten business days to respond, and it’s wise to seek legal assistance under these circumstances.

Restructuring your payments

The best option available to you is to restructure your payments, according to Lebogang Gaoaketse, head of marketing and communication at WesBank.

“Customers who can’t meet their vehicle payment obligations due to financial challenges are encouraged to contact the bank as soon as possible to discuss potential alternative payment arrangements.

“Defaults on payments will always result in a consultation between the bank and the customer,” he explains.

“Credit bureaus are notified if you cannot pay and if legal action has been taken against you, which will negatively affect your credit score.”

Gaoaketse adds, “It is paramount that customers understand that creditors will only repossess a vehicle as a last resort, if no alternative payment arrangement can be made. We prefer it if the car stays in the customer’s garage, not in ours.”

Charl Potgieter, managing executive of Absa vehicle and asset finance, says an impaired credit report will affect your ability to obtain a low interest rate, or a loan at all, in the future.

“For this reason, banks try to come to an alternative arrangement with a customer, such as restructuring their monthly payments in the short term; or by finding ways to settle the loan by assisting them to sell the vehicle through HelpUSell,” he explains.

A short-term payment plan will allow you to pay off what you owe in a period of six months, while a long-term repayment plan involves extending the term of your contract, so the monthly instalment is reduced.

According to vehicle financier Daniel Williams, you can select one of these two approaches once a year. You should work with the bank to decide which option is best for you.

“The bank should indicate the minimum amount they’re prepared to accept. Consider what you can reasonably afford and cut out non-essentials, such as eating out, to ensure you can honour the new agreement,” he recommends.

“Bear in mind, too, that it’s in your best interest to pay more rather than less, because the bank will charge you interest.”

What is voluntary surrender?

Repossessing a car is part of a costly and time-consuming legal process that’s best avoided by the customer, says Potgieter.

“An alternative is to sell the car privately, then look at a more affordable vehicle that will suit your budget,” he explains. “If this is impossible, a lender can help you dispose of the vehicle for the best possible price.”

The credit agreement remains in place until the loan has been settled.

If you surrender your vehicle, you must inform the credit provider in writing of your decision to terminate the agreement. You then have five business days in which to return the vehicle.

Hamman notes that it’s possible to reinstate the loan if the car has been repossessed but not yet sold. “If you’re in a position to resume the credit agreement, you’re entitled to do so,” he says.

Once the car has been sold, the credit provider must provide you with:

• The settlement offer made on the vehicle,
• The actual amount for which the car was sold,
• The net proceeds of the sale, and any related costs, and
• Information regarding monies debited or credited to your account.

You may still be required to pay a portion of what is owed to the bank.

“For example, if your settlement figure is R200,000, and the vehicle is sold for R190,000, you will still be obliged to pay the shortfall of R10,000,” Williams notes.

Tips to prevent your car from being repossessed  

• Be proactive if you anticipate falling into arrears. “The bank has experts who can help customers through distressed periods,” says Potgieter. “We will always try to work with you to find a solution.”
• Voluntary surrender can help you avoid a stressful legal process. “You should never feel pressured into this by a lender. It must be a mutual agreement between the parties, not something undertaken under duress,” Potgieter notes.
• If you’re over-indebted, you can opt for debt consolidation, whereby multiple debts are reduced to one amount you can afford. However, Williams says you should ensure the amount is sufficient to cover your arrears, or your vehicle could still be repossessed.

Tip: Make sure your vehicle is adequately insured. You can apply for car insurance here.