Cape Town - Are you finding it difficult to pay the instalments on your car? If you are then you risk the bank repossessing and you may still end up paying the shortfall if it is auctioned off.
However, there is a legal process that must first be followed, and consumers need to understand it to protect themselves, explained Wikus Olivier from DebtSafe.
He emphasised that consumers should know their rights and what the law specifies in this matter.
How the bank can take your car
There are two ways in which a bank can legally take possession of your vehicle.
“In the first instance, a court order must be obtained ordering you as consumer to allow the vehicle financier to take the vehicle. If there is no court order however, they cannot force you to give your car back," said Olivier.
"Alternatively, it can be done through voluntary surrender in terms of the National Credit Act.”
Olivier noted that voluntary surrender of the vehicle is most credit providers’ first choice because it’s an easier, quicker and cheaper method to get the vehicle back.
But he warned that consumers shouldn't be so easily intimidated when someone from the bank hands over a form for them to sign while trying to take possession of the vehicle.
Olivier noted that any bank form you sign other than a summons, are most likely an agreement that you’re voluntarily giving the vehicle back.
Few consumers realise that they are under no obligation to sign such a form and hand over the vehicle.
“Unfortunately credit providers often blatantly bully consumers, and I want to make it very clear that at this stage you don’t have to hand over your vehicle,” he said.
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How you can make use of voluntary surrender
Should you find that you can no longer afford your vehicle, and are not in arrears with the payment thereof, you may choose to make use of Section 127 of the National Credit Act and voluntarily surrender your vehicle.
To arrange this you must give a written notice to your credit provider stating that you wish to terminate the credit agreement and that you require them to pick up the vehicle.
"As specified by the Act, the credit provider must then furnish you with a letter within 10 days, indicating the estimated sale value of the vehicle. You can dispute the value if you are not satisfied with it, withdraw your notice and resume possession of your vehicle – but only if you are not behind on your instalments," said Olivier.
In the case of a voluntary surrender, the bank is obliged by the Act to sell the vehicle as soon as possible and for the best price reasonably obtainable.
"It is important to realise that when the vehicle is sold at an auction, you as the consumer are still liable to pay the shortfall if the vehicle is sold for less than the outstanding balance on the account – you could end up paying for a vehicle you don’t even have anymore.
"Some however may feel that it’s better to pay a reduced premium on a smaller amount, even if they don’t have the asset anymore, than paying a high premium for an asset they have but can’t afford."
Getting a court order
On the other hand, if the credit provider wants to litigate and get a court order for the repossession of the vehicle, a summons must first be served on you. A court date will be set, where you can present your case.
This is one more reason to ensure that your credit provider always has your latest address on file, for without it the summons will still be served but you won’t know about it. Subsequently you will also not know about the court date or be able to appeal your case in court.
“If you tried to negotiate with the service provider for an adjusted payment plan, the Magistrate might understand and there could be some sort of leniency in the matter, possibly suggesting a reduced monthly premium over a longer period, to accommodate both parties,” said Olivier.
However, if there is no record of negotiations, the vehicle may be awarded to the creditor to sell at any cost they deem reasonable to cover their expenses – and in this case you may still end up paying the shortfall if it was sold for less than your outstanding balance.
Is there another way out?
Olivier added that there is an alternative solution that could help you keep your vehicle, namely debt review.
“As soon as you send your application form with the required documentation to the debt review team, a document (form 17.1) will be sent to the credit providers to inform them that you have applied for debt review."
As of this moment your vehicle is protected against repossession, provided that no summons has been issued yet.
“A huge advantage of our debt review programme is that we negotiate reduced instalments on your accounts; including your vehicle finance. In essence it means you get to keep your vehicle for a reduced monthly instalment,” said Olivier.
He pointed out that while the debt review programme is not a payment holiday, it does provide breathing space for consumers.