Recessions & Repossesions

As we all find ourselves in the midst of a deepening recession; inevitably there are consequences to over spending. For most of us our cars are our second biggest investment and we must try at all costs to maintain those monthly repayments. But what happens when we skip a payment?

During tough times, once a repayment has been skipped, it becomes very difficult to make it up. Consequently your account remains one month in arrears for a long period of time and your account will continue to attract interest on arrears. The more payments you skip, the worse the multiplying effect of those interest charges become.

Contrary to what many people think, the banks are not waiting drooling to repossess your house or your car. In fact that is the last thing they want to do. Just for interest’s sake, it is really bad business for the bank to take your car back because once that happens; you become blacklisted on ITC for a period of 5 years. Each client who has a repossession is another person removed from the market place. The present rate of repossessions are said to be between 5000 and 7000 per month nationally, between all the banks. Multiply that by 12 months and it equates to the car and finance market losing 60,000 to 84000 clients per year.

The problem with most defaulters is that they suffer from “ostrich syndrome”. In other words they bury their heads in the sand and pretend there is no problem out there. E mails, phone calls and SMS’s from the banks are ignored. Final demands and statements are thrown away unopened. People think: “If they can’t contact me, maybe they will just forget about me”. This is completely the wrong way to handle the situation.

If you see you are getting into difficulties with your payments, contact the bank immediately and preferably before you go into arrears. Explain your predicament to them and request an alternative solution. There are many ways to resolve repayment problems. Sometimes the contract period can be extended, thereby reducing the monthly payment. The banks will do everything possible to help you to keep your car. But be the first to go in and communicate.

So what happens when the debt collectors knock on your door at 3 am to take your car? You have probably not been in contact with the bank at all and ignored all attempts by the bank to get hold of you. This will normally happen when you are approximately 3 months in arrears.

The bank will obtain a court order to repossess your car and the person collecting the car from you will have that document empowering him to take the car away. The car will be moved to a place of safety – all the banks have huge sheds where these cars are kept. The car has to stand there for a specified period of time, during which you are given a final opportunity to make up the shortfall on all the arrear payments plus all administrative and legal costs. This period is usually 30 days.

After that, if the car is till not settled, the car is put up on public auction. Now this is the really bad part and I strongly recommend that anyone who is currently in this situation should be present on the day his car is auctioned to confirm the highest offer. OK, so let’s say trade book value on your car is R 100,000 and the highest offer is R 60,000, you are still liable for the shortfall, plus all costs. In other words R 40,000 plus costs.

It would be safe to assume that you are not in a position to cough up R 40,000 plus in cash, so then the bank may attach any or all of your other assets, sufficient to cover the shortfall. This could include you furniture, appliances, other paid up vehicles, caravans, boats, trailers and even your home if the amount is large enough to warrant such action.

Obviously this is a worst case scenario, but it can and does happen frequently all over South Africa. So take a tip, and understand that the very best solution is to put your pride in your pocket and go and visit the bank manager. Be frank and honest and try to be a part of a solution rather than a problem.

Recessions happen in all countries. In South Africa, they seem to happen every 9 to 10 years and their duration is usually 18 months to 24 months depending on what the circumstances are locally and world wide. This recession will also pass, just as all those before it have done.

Sound financial planning does not require you to have a degree or to be super smart. It only takes a little common sense. During the tough times, cut back on some of the luxury items, have shorter holidays, don’t go overseas, maintain your car rather than replace it, and talk to those you owe money to – in 99% of the cases they will understand and appreciate your honesty and make a plan to assist you.

It takes a lifetime to build a good name. Don’t destroy it by being an ostrich.

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