Facing car repossession - what are your options?

Once you’ve been unable to pay your last three instalments, a bank flags the account sending a representative to meet with you in the attempt to make arrangements for the payment of the arrears. The bank will play out several scenarios, but if you simply cannot afford to pay it they will track you down and collect the vehicle.

The vehicle is taken to an auctioneer that will store it for approximately 10 days - a further grace period to allow you one final chance to pay the arrears.

Unfortunately, when it reaches the point of being repossessed, most people don’t have the funds to properly maintain the vehicle. This has a knock-on effect causing a deterioration in its condition depreciating the value even further.

Mohammed Sader, new business development executive at auction.co.za, provides a few tips on how to deal with the threat of repossession and what you can do to mitigate against it.

Make up late payments

Easier said than done, but this is the first prize. By making up your late payments you avoid setting the repossession in process. Go through your loan agreement and read what it states about the length of time before you are in default. It is usually after three months, or even missing just one payment.

Reinstate the loan

Even if you are in default, there is still hope of avoiding having the vehicle repossessed. It's best to contact your bank and find out how you can reinstate the loan. In general, this would mean making up all the missed payments or coming to an arrangement where the outstanding amount can be integrated into the total settlement value.

Redeem the vehicle

If repossession takes place, you can redeem the vehicle by paying the outstanding balance due on the loan in its entirety. Realistically, this is not something many people would be able to do.

Negotiate with the creditor

You can always approach the bank and try to come up with an alternative arrangement. This might include either selling the vehicle yourself or surrendering it. The latter will see the bank then agree to either waive the outstanding amount or reduce it considerably. But whatever arrangement you make, always get it in writing.

Go online

A great alternative to avoid any of these potentially tricky steps is to go online and register on a site like auction.co.za to sell your vehicle as soon as you begin defaulting on your loan payments. The sooner you do so, the less value you lose by not maintaining your car in your tough financial period. More people are using online auction sites to look for great deals as opposed to buying new. And with a number of quality controls including a full inspection, the process will be significantly smoother than going the repossession route.

Auction it

However, if the vehicle does get repossessed, it is usually sold through an auction. Sadly, it is common for vehicles to sell for a fraction of their resale value. If this happens, you will owe the difference, called the “deficiency balance”.

To avoid this happening, use the auction process as your ally. Approach the auctioneer pro-actively explaining your situation. They would be able to sell it for good value instead of going through the repossession route which is a very lengthy process. After a thorough inspection, it would be valued a little higher and the sale will not negatively impact your credit record. The bank might even set up an acknowledgement of debt agreement where you will be able to pay off the arrears amount over six months.

It all comes down to not sticking your head in the sand when you are facing a difficult financial situation. Contact the bank before things spiral out of control.