South Africans are struggling to keep up with their monthly expenses in the wake of a string of interest rate hikes that have seen steady and steep increases in loan instalments, leading to more people defaulting on debt repayment, especially with regard to home and vehicle financing.
This is evident in the number of vehicle owners defaulting on their car payments in the first Quarter of 2023, which is up by 4% Year-on-Year, according to the Experian Consumer Default Index (CDI) – amounting to an astronomical figure of R 4 billion. The Experian CDI is designed to measure the rolling default behaviour of South African consumers with Home Loans, Vehicle loans, Personal loans, Credit Cards, and Retail Loan accounts over three-month periods. Credit Bureau Transunion reports a 650 basis points increase in first-month defaults compared to the first quarter of 2022 in its Quarterly Overview of Consumer Credits Trends for Q1 2023.
Owning a car is a significant investment for many South Africans, providing mobility and convenience. However, life circumstances can change unexpectedly, making it difficult to keep up with car payments.
“If you find yourself in a situation where you are unable to meet your financial obligations, it is crucial to understand your rights as a consumer and take the necessary steps to protect yourself from vehicle repossession,” says Neil Roets, CEO of Debt Rescue. He advises cash-strapped vehicle owners to react promptly and be wise in weighing up the various options available to them if they are in default of their vehicle payments.
Roets says his concern is that increasing numbers of defaulters may, in turn, increase the number of creditors instituting legal action for the foreclosure/repossession of financed vehicles and offers sound guidance to vehicle owners facing this dilemma.
Understanding Defaulting on Car Payments:
Defaulting on car payments means failing to meet the contractual obligations to the credit provider. This typically occurs when one or more scheduled payments have been missed. “When you default, the creditor has the right to take action, which may or may not include repossessing your vehicle. However, it is important to note that repossession should be the last resort after all reasonable attempts to resolve the issue have been made,” Roets advises.
Communication is Key:
Vehicle owners, who find themselves struggling to make payments, should take the first and most important step as soon as possible - communicate openly and honestly with the credit provider. “Reach out to them to explain your situation and explore potential solutions. They are often willing to work with you to find alternative payment arrangements or restructuring options that can help you keep your car,” says Roets.
Know Your Legal Rights:
Consumers are protected by certain rights outlined in South African legislation, such as the National Credit Act (NCA), and it is vital that they familiarise themselves with these rights to understand the actions the credit provider may or may not take – especially as this relates to repossession of a vehicle.
“It is a real concern that many consumers are being convinced to hand over their vehicles voluntarily in terms of S127 of the National Credit Act, believing they have to do so when approached by a debt collector. This is not true. Vehicle repossession can only occur via an official and original court order, known as a warrant of execution, and only if a judgement has been issued,” explains Roets.
A credit provider may only approach a court to have your vehicle repossessed once these actions have been taken:
a Section 129 notice (letter of demand) has been issued – and this can only happen after the account has been in arrears for 20 days or more.
A summons (legal document) has been served by a Sheriff of the Court that gives you an opportunity to defend yourself.
A Sheriff of the Court has delivered the original warrant of execution (original court order) stating that the vehicle can be repossessed.
Other key rights to be aware of are:
Right to Fair Treatment: Creditors must treat consumers fairly and not engage in any unfair or deceptive practices during any stage of the repossession process.
Right to Default Notice: Before initiating repossession proceedings, creditors are required to provide a written default notice, giving the vehicle owner a chance to rectify the default within a specified time frame.
Right to Voluntary Surrender: If the vehicle owner is unable to meet his or her financial obligations, he or she has the right to voluntarily surrender the vehicle to the creditor. This may help to avoid additional costs associated with repossession.
Right to Redemption: Even after the vehicle has been repossessed, the vehicle owner has the right to "redeem" it by paying all outstanding amounts owed, including arrears and associated costs. This allows them to regain ownership of the vehicle.
Roets advises vehicle owners who, having exhausted all other avenues, are under threat of repossession to seek debt review – before legal action is taken. “This is the best way to assure that your assets remain secure under the protection of the National Credit Act (NCA). Your vehicle cannot be repossessed while you are under debt review and are making the renegotiated repayments” he concludes.