South Africa is officially in a technical recession. Petrol is already becoming unaffordable for many, and is set to go up yet again in October. Times are tough and, understandably, many people who are already struggling with the rising cost of life are falling behind on debt repayments.
“The number of cars being repossessed in South Africa is rising. And, unfortunately, the current repossession process is strict and significantly unfair towards both the consumer and the bank,” says Renaldo de Jager, co-founder of online auto auction platform, Auction.co.za.
He believes that it is time to implement a better process that works in everyone’s favour. The current process kicks in when a consumer is three months in arrears on car payments. After this point, it is unavoidable that the bank can repossess your vehicle. During the three months prior, however, you will have received due notification and be given a chance to catch up on payments. And once they have taken it, you have 30 days to come up with the arrears. The good news is that it won’t simply come out of the blue.
But De Jager says that the situation should be dealt with much sooner or it is unlikely that the consumer will get the full value of the vehicle back ‒ and this won’t benefit the bank either.
“As soon as someone is in trouble, the first thing they do is they stop servicing the vehicle and then the next step is to cancel their insurance. Then their car payments start to lapse and it becomes a slippery slope. But as soon as your car is repossessed, you will lose money on the vehicle for a number of reasons. You will be faced with a legal fee of about R26 500 which is applied for every repossession. The bank will do a valuation of the vehicle and then do a forced sale adjustment. Essentially, they will determine the full value of the vehicle and subtract 45 percent,” De Jager explains.
“After this, they will deduct the reconditioning cost ‒ the amount needed to get the car into a saleable condition. This process can take anywhere from three to six months and, all the while, your vehicle is depreciating by 1 percent per month. Furthermore, you will not be able to service your car in this time and could potentially lose further value as a result of the car’s warranty and motor plan expiring. All of this depreciates the value, which is not what you want at this time.”
All of this, he concludes, paints a bleak picture for a person who is already in trouble financially. The ultimate outcome is that you could end up with no car and still owe the bank money. So, his advice is, if you’re in trouble, don’t bury your head in the sand and instead sell your car before you are at risk of repossession.
“Banks’ hands are tied. If you can’t afford petrol and you can’t afford insurance, then you know it’s time to get rid of your car. It’s best to sell before you are forced to default on payments,” he says.