The current economic landscape in South Africa has presented its consumers with a number of challenges, pushing them to their financial limits. High unemployment rates, stagnant salaries, and inflation spikes have created a storm for many individuals. While there is a glimmer of hope as inflation rates stabilise, the road remains rocky for consumers. For vehicle owners specifically, adding to their burden, escalating fuel prices and insurance premiums are making it increasingly difficult for them to manage their expenses alongside other financial responsibilities.

Challenging Times For South Africans 

The current situation in South Africa highlights the challenges faced by its consumers. High unemployment rates, stagnant wages, and past inflation spikes have pushed many people to their limits. There’s some hope that inflation rates are steadying, but it’s still a tough spot for consumers. 

The Total Cost Of Your Vehicle

WesBank reports that the overall expenses associated with owning and maintaining a vehicle have notably risen since 2018. In 2023, the inflation rate reached its highest point on record, impacting consumers with vehicle finance arrangements the most. As inflation escalates, the government typically responds by raising interest rates as a measure to control it. Unfortunately, this results in consumers having to pay more than they initially anticipated.

To illustrate how these costs have surged, let’s consider an example:

These calculations are based on zero deposit/trade in value as well as 0% residual (Balloon payment) and a repayment period of 72 months. 

The Danger Of Missing A Debt Repayment

Failing to meet a debt repayment has various consequences that may prompt credit providers and financial institutions to take action to recover the unpaid amounts. When a consumer misses several payments on their credit accounts, it could trigger legal action from the credit provider. Furthermore, the consumer’s credit score will suffer, and the interest owed and fees will increase.. Consequently, when settling the outstanding balances, the interest on the debt will have significantly accumulated.

Multiple Missed Payments May Result in Repossession

Failing to make payments on your vehicle can lead to various consequences, potentially resulting in the loss of your vehicle. When a consumer falls behind on their vehicle payments, financial institutions and credit providers typically start sending letters to inform them about the missed payments and any outstanding balances.

Upon receiving such notifications, if the consumer fails to settle the outstanding debt, the financial institution may take further action. This includes dispatching a sheriff of the court to determine if the vehicle is still in the consumer’s possession and to serve them with a legal summons. In cases where the consumer is unable to make the required payments, the vehicle may ultimately be repossessed.

According to an Asset Retention Specialist at Vantage Debt Management: “Consumers need to maintain open and honest communication with their credit providers. If a consumer finds themselves unable to repay their monthly installments or outstanding balances, they should consider communicating with the credit provider. Setting up a payment arrangement will allow the consumer to catch up missed payments and settle any arrears.” 

Shortfall Liability – You Still Owe Even If Your Vehicle Is Sold

In the event that the vehicle has been repossessed by the credit provider or financial institution, the consumer is still responsible for the shortfall amount. For example: if the consumer still owed R200 000 on the vehicle, and it was sold for R110 000, the consumer would still be liable for settling the rest of the balance. 

According to an Asset Retention Specialist at Vantage Debt Management, the norm among consumers is to delay proactively seeking advice until it’s almost too late. In an ideal situation, when a consumer has missed as few as two payments, it’s advisable to proactively seek guidance on how to resolve the outstanding balance or consider pursuing a formal solution like debt counselling.

How Debt Counselling Can Protect Your Vehicle

In 2007, the National Credit Act introduced Debt Counselling. This acted as a vital financial rehabilitation tool with the primary aim of giving consumers a second opportunity to meet their financial commitments to credit providers. Debt counselling can assist consumers rebuild their credit scores.

Through debt counselling, consumers can gain advantages such as a structured repayment plan, reduced monthly installments, and lower interest rates. Furthermore, this process serves as a safeguard for consumers, ensuring that assets like a vehicle remain protected and the consumer is able to use it during their process.