Car Repossessions Are on the Rise, Here's How to Avoid Them

Car repossessions are a pressing issue for many people in South Africa. According to a report by the South African Index for March 2021, people in South Africa are experiencing great psychological stress because of the repossessions of their cars. Understanding how car repossession works will allow you to take steps to prevent your car from being repossessed.

If you are facing a repossession, it simply means that your bank or finance provider is taking back items you purchased using credit. Typically, this problem arises because the borrower has not paid all the payments toward their monthly obligations on time, and the vehicle finance account has fallen behind in payments. Vehicle repossession can be frustrating and stressful both for the lender and the borrower.

What Is Repossession?

Car repossession is when a lender takes back a vehicle from a defaulting borrower who financed it to minimize losses. This car is then repossessed and sold to mitigate any losses. Such a situation usually occurs when borrowers fail to uphold all their contractual obligations under the financing agreement.

In most cases, if the lender does not receive seventy per cent of the arrears balance within thirty days, the lender will approach a court of law to retake possession of the vehicle. A lending company will frequently hire a third-party collection company, such as what we refer to as a repo company, to help with the repossession of the vehicle.

What are the reasons why banks repossess cars?

It is imperative to note that there are several reasons when banks repossess cars. The underlying problem is that borrowers frequently fail to make timely payments, and the account falls into arrears. You risk having the car repossessed if you do not make payments on a financed or leased vehicle. It happened because you failed to make your monthly payments on time, and the account went into an unacceptable arrears’ situation. The bank will let you know about the arrears amount due if you fall too far behind on your payments. Whether or not you are willing to work with the bank and make your payments on time or are unable to pay, the bank is entitled to proceed with a repossession court order to repossess the vehicle.

In another case, the bank may repossess the vehicle because the borrower owes more than the car is worth. You can expect a bank to act promptly to reclaim some of the money owed by you through the repossession of your vehicle. You will receive a fair market price for your car when it goes up for auction. If the vehicle gets sold, the proceeds will help pay off the remaining balance on the finance agreement.

Know The Law.

To avoid the repossession of your car, you must first understand the applicable law. It is imperative to remember that the National Credit Act requires that all lenders give the borrower proper notice before taking possession of the vehicle.

Under the National Credit Act (NCA) 34 of 2005, a consumer defaulting on a vehicle finance agreement must receive a written demand letter twenty business days after default. The bank can send this demand letter as early as twenty days after the first default. That allows you a certain amount of time to rectify the arrears situation, and you can take alternative steps to safeguard the vehicle.

Debt counselling can serve as a legal way to protect a car from repossession. A discussion of this essential process will follow later in this article.

How Can You Prevent Car Repossession?

Nobody buys a car using bank finance planning to miss their payments. However, unforeseen circumstances can force you to default on your commitments to repay. Divorce, retrenchment, death of a family member or being diagnosed with a severe chronic illness may result in situations in which you suddenly find yourself drowning and unable to pay for your car. Before you get into financial problems, here are some steps you should take if you are unable to pay your car payments.

Your bank will allow your account to fall into arrears for no more than 75 days before taking enforcement action on your defaulting car finance agreement. As a result, you have a little extra time to formulate a plan to get the account back to normal. Nevertheless, here is some good news for you: Most credit providers would prefer to work with you to avoid delinquency rather than resort to repossession. You can take the following steps if you are having trouble making payments on your vehicle finance agreement:

Review your finance agreement. If you do not know the exact terms and conditions of the finance agreement, now is the time to review it. You must be familiar with every detail of the finance agreement, including the interest rate, term, monthly fees, and collection costs. Please familiarize yourself with the fine print in the terms and conditions that pertain to defaults, delinquent payments, and missed payments.
Establish a budget and stick to it. To rectify the adverse condition of the finance agreement, create a budget and ensure that you stick to it. Reduce any unnecessary expenses for the next few months to make sure there is enough money to make your car payment. By paying an additional monthly amount, you can pay off any arrears you may have. You will pay this extra amount for the next three months.
Next, you must determine whether this default situation is a temporary or ongoing problem. By building a budget, you will better understand why you can't afford to make your car payments, and you will be able to determine whether this is a temporary issue or a more complex long-term financial problem.
There is no need to panic if you missed a payment because there were unforeseen expenses this month. If this is a rare occurrence, follow the steps mentioned above to catch up on any arrears by following your budget. In the case of a more relevant and longer-term issue, we recommend you seek professional assistance.

When faced with the prospect of going through a repossession, you have a few options to prevent it.

Avoid ignoring collection calls and demand letters at all costs. Instead, speak to your credit provider immediately. By using a proactive approach, you may be able to avoid repossession and the hefty legal charges that come with it. Try to negotiate an alternative payment arrangement if possible. Most banks will require an upfront payment of 70% of the arrears balance to stop the collection process.
As a second option, you should try to negotiate with the credit provider to make additional monthly payments to settle the arrears. Your credit provider usually gives you three months to resolve the arrears before repossession proceedings begin.
Thirdly, if you cannot pay off your arrears or if you have difficulty affording the monthly payments, you may want to consider selling your vehicle. By selling the car yourself before the legal process of repossession begins, you will save a lot of money on legal fees. In addition, you will reduce any stress typically associated with the repossession process itself.
The fourth thing you can do is ask your friends and family members to help you pay the arrears.
The fifth step is to contact us to apply for debt counselling. This process is a legal process that will stop the repossession process in its tracks. The process will also provide you with a reduced monthly instalment to help you pay for the vehicle. The arrears amount will get restructured so that you can continue to repay the car with an approved reduced instalment with no arrears. We will cover the debt counselling process in detail below.

It is essential to avoid repossessions as much as possible. In other words, you must ensure that any deficits you owe get settled. You should also take the necessary steps to ensure that you do not fall behind with your payments so that you don't fall into arrears again.

What Happens During Car Repossessions?

Repossession occurs when a lender takes back the vehicle used as collateral for financing. South Africa's National Credit Act outlines the steps that need to happen to repossess a car legally.

Section 123 letter of demand. The process of repossession of a vehicle begins with a Section 123 letter of notice. Whenever the lending institution wishes to repossess a car, truck, or motorbike, they must send a letter of demand under section 123 of the National Credit Act outlining the amount owed.

It is required to send this letter by registered mail to the address outlined in the contract. To prove that the credit providers' letter of demand was delivered successfully, tracking information provided by the South African postal service will serve as proof.

Summons or voluntary surrender. You must understand that if you do not send an acceptable response to the letter of demand, the bank may take further legal action beginning with a summons. It is still possible for you to voluntarily surrender your vehicle before a summons from court is issued. Doing so will result in no further charges. Consumers can voluntarily relinquish their car under Section 127 of the National Credit Act to save themselves from additional legal fees. After surrendering your vehicle, you will have an additional ten days to decide whether you still want it. The bank will then sell the car at auction if you are no longer interested in it. If there is a shortfall in the sale, you will be held liable for paying the difference. On the other hand, if there is a surplus, the lender will refund you the difference.
Judgement from the high court. Upon receiving a default judgment, the bank or credit provider will have a warrant issued by the high court and sent to the sheriff. It is through this warrant that a vehicle can successfully get repossessed. The only person who has the authority to act on this warrant and take your car back is the sheriff.
Repossession of the car. The sheriff will arrive at the registered address of the defaulter and present the original warrant. Consumers do not have to sign anything as it is an order from the court and do not require their signature on any court documents. This default will now be listed on your credit profile, and you will be regarded as blacklisted.

The sheriff will then seize the vehicle and tow it away for safe storage. If the consumer settles the total outstanding balance with any legal fees, the consumer still has the option of repossessing the vehicle. Nevertheless, if the consumer fails to make the full payment of the outstanding balance within the given period, the sheriff will auction the car.

Prepare For Repossession.

There are three main reasons why people face car repossession. One reason is that they cannot afford to repay their loan. Another reason is that they have defaulted on their payments. And finally, they have been declared bankrupt.

What Should I Do After a Repossession?

As a result of the court's order, the sheriff now has the authority to collect your vehicle. It is helpful for consumers to know what to do during this stressful period of their lives. The repossession process isn't easy, and you may feel like you have no control over what happens next.

In the event of repossession of your car, you may be able to reduce the stress and anxiety resulting from the repossession by acting in advance. If you have fallen behind on your car payments and are worried it might be seized, plan to handle daily responsibilities. This plan must include both you and your family.

Personal belongings. Before your car gets repossessed, ensure that you have removed all personal belongings from the vehicle. In the event of a repossession, you will have difficulty retrieving your personal belongings forgotten in the car, and often, these items will be lost.
Don't be afraid to ask for help. Don't hesitate to talk to your family, friends, and Neighbour's - they may be able to assist. Ask them about their work schedules and responsibilities daily. Make them aware of the possibility of an emergency coming up where you may require their help.
Consider carpooling. You must build up a network of friends that you can call upon to help you out during times of need.
Grocery delivery services. You can sign up for apps that will deliver your groceries, and you can also contact your local pharmacy to find out if they will transport your monthly medicines to your residence.

Rebuilding your credit score and credit profile as soon as possible is essential after you have had your car repossessed. The default in your payment profile because of the repossession can remain on your credit report for up to five years, causing a big dent in your credit score.

Debt Counselling to Avoid Car Repossessions

The debt counselling program offers several ways to reduce your indebtedness, which in turn helps you to keep your car. It also makes it possible for you to repay any money owed to your creditors on time.

A consumer with too many financial obligations will find it challenging to repay their accounts. In this case, it is advisable to seek the advice of a debt counsellor to review their situation. Upon acceptance of your application for debt review, a debt counsellor will negotiate with your creditors a payment plan that you can afford.
As part of this financial restructuring process, all repossessions will stop. The benefits of this are that you would be spending less each month, but for a protracted period. As a result, you would incur less interest for a longer time. Considering that you will be spending less each month, you will be able to pay off your due accounts and keep your car. In addition, you will be able to pay for your monthly living expenses, such as food and transportation.

Know Your Rights.

If you are a person who is struggling with financial troubles, it can already be quite stressful for you. Due to the fear of losing an asset, such as a car, for non-payment, financial disaster certainly looms. Fortunately, debt counselling is an excellent way to protect your assets. If you choose to participate in the process, you will have the following rights.

It is every consumer's right to seek debt counselling services when faced with problems.
A consumer has the right to know why their application for debt counselling failed and got rejected.
The consumer has the right to receive a written disclosure of fees applicable before applying for debt counselling.
Before applying for debt counselling, consumers have a right to be fully informed about the process involved in debt counselling.
Every month, consumers have a right to receive distribution statements from their debt counsellors and payment distribution agents.

Start with an Initial Consultation.

One of the most effective ways to deal with financial problems and repossessions is through debt counselling. Debt counselling helps consumers to avoid repossessions as well as bankruptcies. However, it may not be suitable for everyone. It is crucial to talk to us before you get started, and we will explain the process in detail to you.

Understand the Process.

It's imperative to understand what's happening to you if you struggle with unmanageable debt. It is common for people who owe money to feel overwhelmed by the situation due to the enormous balances they owe. As a result, they can make bad decisions, such as taking out micro and payday loans that they cannot afford, which can end up leading to more problems.

We are here to help you through each step of the process and offer professional solutions like debt review that will assist you in managing your creditors and repossessions successfully.

Prepare for the Meeting.

Preparation is incredibly vital for in-person or telephone meetings. Make sure you have everything ready before you do the debt review consultation. If you have any documentation that will help you discuss your financial situation, please bring it with you.

Debt Counselling Fees - How Much Does It Cost?

Debt counselling is a good option for people struggling with financial problems. It helps you develop a plan to repay your creditors on time and avoid bankruptcy. The service is not free, and The National Credit Regulator strictly regulates debt counselling fees. The National Credit Regulator (NCR) released the Guidelines for Debt Counsellors in 2018. The following maximum charges are what a debt counsellor can charge:

An application fee of R50.
There is an administration fee of R300 per debt counselling application if the debt counsellor rejects your application because you are not eligible.
You and your creditors must agree on the repayment plan before a debt counsellor can charge the maximum fee of R8000 (plus VAT). In this case, the amount equals the amount of your first instalment as per your repayment plan. In other words, if your restructured instalment is three thousand rands, you will only pay R3000. You will need to pay this fee only ONCE.
The maximum fee for restructuring will be R9,000 (plus VAT) if the restructuring application is for both you and your spouse when you are married in a community of property marriage.
The debt counsellor must refund all fees you have paid if they cannot present a repayment plan to your creditors, the National Consumer Tribunal, or the Magistrate's Court within 60 business days of applying for debt review.
A monthly service fee of R450 (plus VAT) applies, equivalent to 5% of the monthly payment. Once you have received a clearance certificate stating that you have repaid all the debts for which you sought debt counselling, following which the aftercare fee will no longer apply.
You will incur a fee equal to 75% of the original restructuring fees if you withdraw from the restructuring process after your debt counsellor has prepared a repayment plan for you and successfully negotiated with your creditors.
If creditors refuse to agree to the repayment plan, you are responsible for any fees that the Debt Counsellor incurs.
The Debt Counsellor must disclose all fees to you upfront, and you must agree to the costs in writing.

When Should I Seek Help from A Professional Debt Counsellor?

As advised before, this process is not free, but the cost implication is modest compared to other financial relief measures. Use our debt review service to manage excessive balances that are difficult for you to handle. If you have pending car repossessions, then this restructuring can assist with a legal solution to prevent car repossessions and foreclosures.

Where Can I Go to Learn More About Debt Counselling?

There are different options available when it comes to dealing with loans and high outstanding balances. One option is to go through a debt counsellor who will work with you to find ways to reduce your monthly repayments. Another option is to take out a personal loan. This type of loan allows you to borrow money without needing to sell any assets. However, there are some disadvantages to taking out a personal loan. Interest rates, for example, are typically higher than those a debt counselor would charge.

Apply for debt counselling by clicking the photo below.

10 Reasons Why You Should Consider Debt Counselling

Credit providers and lawyers will no longer call you demanding payment. If you are in debt counselling, all collection activity will cease.
You will retain control of your assets during the restructuring process. The debt counsellor will seek a court order so that the restructuring plan negotiated with the creditor becomes legally binding as part of the debt counselling process. A credit provider, lawyer, or collection agency cannot repossess a home or car.
Reduced interest rates. Reducing interest rates with credit providers is part of the restructuring plan. Due to the lower interest rates and charges, the consumer saves money. According to DCRS rules, credit cards, retail cards, personal loans, and microloans can decrease their interest rates to 3-5%.
Choosing debt counselling instead of sequestration and administration. The primary benefit of this process is that it is a healthy alternative to sequestration and administration. It takes ten years to recover from sequestration, insolvencies, and administration. As an alternative to sequestration and administration, the National Credit implemented debt counselling. Overstretched consumers can now catch up on overdue accounts and still manage to cover living expenses effectively thanks to this Credit Act. The procedure is straightforward, quick, lawful, and effective.
Debt review is flexible. If you come into some unexpected additional money during the month, you could pay off or increase the amount you contribute each month. It means that when things get tough, you can make lower monthly instalments and increase monthly contributions when things get better. Essentially, this allows this process to move forward faster.
Simplified Process. TransUnion reports that there are currently 7 million credit card accounts in existence. At R216 billion, the total balance on credit cards indicates that there is still a strong demand for credit. Debt obligations multiply in a two-parent household, making it challenging to track household debts. The situation becomes even more complicated when the family income does not cover the monthly debt repayment. When this happens, deciding which creditors should get paid becomes more difficult. This process will be simplified by a debt counsellor who will ensure that all your creditors get paid. When you use Debt counselling, you will have only one payment to make, eliminating the need to send payments to several creditors.
More effective financial habits. Debt counselling is the best solution for improving your financial habits. Personal finance skills are predominantly a behavioral issue. Once a debt review application is accepted, you will no longer have access to credit, so you will have to cover household expenses with your income or cash you might have rather than borrowing. Using cash for any purchase teaches people to save money. When this skill is acquired, one is well on their way to creating wealth
You spend less on interest and more on capital management. The main advantage of debt review is that it lowers interest rates. When you pay your debt at a lower interest rate, you allocate more money toward the principal debt. Compared to making a payment arrangement without the assistance of a debt counsellor, the balance decreases much more quickly. Over the life of the debt, a reduced rate account can result in less interest owed.
Easier negotiation with creditors. Debt counselling makes negotiating simple if you have many accounts to pay for all at once. An important goal of your debt counsellor is to decrease the minimum amount due to credit providers by extending the repayment period. Credit providers will reduce interest rates as the term increases or when the accounts get resolved in a certain period. We reduce interest rates so our customers can pay off their financial obligations more quickly and affordably. Read more on the National Consumer Protection Act and your rights as a consumer.
Debt counselling is 100% guaranteed. With us, you will get your financial obligations repaid cost-effectively, and your current financial situation will not worsen. By adhering to the restructured amount, you can ensure that payments get paid each month without skipping. Credit providers will terminate the debt review process if you miss a month.