What to do if you cannot afford your car payments


As lockdown drags on and job cuts continue, ever more people are facing financial difficulty when it comes to paying off debt. City Press has received many queries from readers about what to do if they cannot afford their car repayments. The bottom line is that you must start with having a conversation with the bank – sooner rather than later.

City Press reader Michael had lost his job and realised that he could no longer afford his car. He took the drastic step of selling the vehicle, but he had a shortfall on what he still owed.

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We recommended he speak to Nedbank’s car finance division, MFC, which had financed his car, to discuss his options. He had a lump sum of R50 000 that he could use to settle a portion of the R65 000 shortfall. The bank agreed to accept that as full and final settlement.

Neeyna recently lost her job and, after paying off her car over five years, she still has an outstanding amount of R51 000. She has R40 000 available to settle the car. This is a different situation from Michael’s, as Neeyna still has the asset and, technically, could sell the car to cover the shortfall. However, banks are seeing the Covid-19 pandemic as exceptional circumstances and are more willing to come to an agreement that keeps the client in their car. But it all depends on the client’s history with the bank as well as their payment history.

As Neeyna has never missed a payment and is in good standing, the bank is more likely to come to a favourable agreement.

 Absa Group’s managing executive of Absa Vehicle & Asset Finance  Faisal Mkhize says:

There is a cost to repossessing a car. There are legal costs, and it takes time. If a client is willing to negotiate and pay something towards the car, then we are willing to come to an agreement.

An MFC spokesperson says the bank will look at each individual on a case-by-case basis. There is no blanket approach, and it will depend on the history of the client with the lender.

“Like most financial institutions, we do not want to take your car. Our first option is, where possible, to help the customer keep the car.”

But it does depend on the situation. If you recently bought the car and there is a significant amount outstanding – and you do not have an income – there is not much room for negotiation. In this situation, your best option is to sell.

An MFC spokesperson says they have a division called Assisted Sale, which customers can use to ensure they are selling at the best possible price.

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“A desperate seller may take the first offer they get, which could be less than the market value,” says the MFC spokesperson. By contacting Assisted Sale, the team can provide you with a good idea of what your car is worth and provide details of recommended dealerships. They will also look into what you could expect to get on auction. Absa has a similar division called HelpUSell.

In most cases, there may be a shortfall between what you owe and the value of car. You would need to negotiate a settlement agreement either through a repayment plan or an agreed lump sum.

“If a client uses this platform and we know they received the best price for the vehicle, we have various settlement plans linked to HelpUSell to assist the customer rather than face a long legal process,” says Mkhize.

He says that, in a case where there is a shortfall and the client has no income, it is not possible to restructure a loan. If the debt is significant and cannot be written off, it would be noted as a liability against the client, with the agreement that it would be repaid once they have an income.

Mkhize explains:  

It is important that the client discuss this with us so that we have an agreement in place, and we do not take legal action.

Once a bank starts with legal action, it becomes a very costly exercise and those costs are added to the outstanding debt. A client who has been actively working with the bank to resolve the issue is in a stronger position to ask for leeway.

“We want to find a solution that allows a client to walk away from the transaction in a manner that does not compromise the bank or client. It is still important to remember that this is depositor’s money – so we have a responsibility to collect outstanding debt.”

The worst thing you can do, if you cannot afford the car, is to miss payments without reaching out to the bank. The MFC spokesperson says that, once you miss three payments, the debt is handed over to the legal department and the car is repossessed. It is usually at this point that a client starts engaging with the bank.

Mkhize says that, while the bank would still be open to discussion, it does become more complicated. In some cases, the legal process would have already started, and the costs incurred are added to the debt. The bank is also less likely to trust that the customer would meet any new agreements that are made.

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He explains that, while selling a car may not be the customer’s first choice, selling the vehicle and buying a less expensive car may be the best outcome, especially if it is a luxury vehicle.

When you add up the costs of insurance and fuel on a luxury car, there are even more cost savings than just the instalment,” says Mkhize, who adds that now is a good time to sell.

“There is a shortage of new cars, so we are seeing premiums paid for secondhand cars at the moment.”

In conclusion, if you are struggling to meet your car repayments, there are many options open to you – but you have to start the conversation with the bank now. If you are not getting anywhere, ask to escalate your problem to the bank’s debt review department, where the staff have been trained to consider various debt repayment options. If you reach an agreement, make sure you have it in writing.