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You’ve bought the car you always wanted, but, within a year or two, you realise that the repayments, petrol and insurance are simply unaffordable. The car of your dreams is now giving you nightmares – so what can you do?
TAKE IT BACK
One option is simply to return the car, hand back the keys and say, “Sorry, I made a mistake.” Unfortunately, it is not that simple and, depending on who financed your car, it can become a very expensive return.
If you financed your car through a bank, handing back the keys is, in effect, a voluntary surrender.
Faisal Mkhize, managing executive at Absa Vehicle and Asset Finance, says the bank will take possession of the asset, value the vehicle and then prepare it for auction. It will then be sold for the highest possible price.
The customer will be liable for any amount still outstanding if the sale of the car does not cover the outstanding debt, and that includes administration fees in selling the vehicle. It is also important to note that this will be seen as a vehicle repossession and will affect your credit score. The other issue is that you are unlikely to get a decent price for your vehicle at a public auction.
In an auction scenario, the buyer has no opportunity to inspect the car, so they will heavily discount the price they are prepared to pay because they run the risk of buying a “lemon”. It can also take months for the car to go on auction, which means it will depreciate further in the meantime.
In the case of in-house finance at a dealership such as BMW or Mercedes, you can ask for an approximate valuation before returning the car, however, there is no guarantee that you will get that amount.
The dealer will take possession of the car with the aim of selling it to another dealer within three months, but there is no guarantee they will make the sale or that they will get the expected price.
While legal fees may not apply in this case, the dealer will most likely take some commission on the sale of the vehicle. Again, you will still be liable for any debt that is still outstanding after the sale of the car.
PRIVATE SALE
Another option is to sell it privately – this is especially beneficial if you have financed the car through a bank. However, buyers are reluctant to purchase a car with finance as the bank will only hand over the title deed once the outstanding debt is settled. As a buyer, you will not know if the seller is in a position to settle the outstanding balance.
William Miller, co-founder of online auction platform auction.co.za, says that they inspect the car and contact the bank to confirm the settlement amount before selling it privately through their platform.
Only if the customer has the money to meet the potential shortfall or qualifies for a shortfall loan will they allow it on to the platform – in this way, the buyer will know the car has been inspected and that the financing will be settled. Auction.co.za will use their data to provide an estimate of what your car is worth.
You have two options, depending on how urgent the sale is. You can opt to sell the car to a dealer within 24 hours and pay 4% of the selling price for administration purposes. Auction.co.za accesses 7 500 dealerships across South Africa. Or, if you have time, you can wait for a private offer, and possibly a better price. In this case, there is no cost to the seller and the buyer pays the 6% administration fee.
“You could get more money by waiting, especially if the car is in good condition with no chips or a need for reconditioning. If the car does need some work, then selling through a dealer is a better option as they recondition before selling,” says Miller.
DOWNGRADE
Dealerships usually provide for downgrades to make the instalments more manageable, but what if you want to buy a different brand?
Elton Govender, founder of online dealer autokustom.co.za, says they facilitate downgrades to reduce instalments.
“For example, someone would trade in a BMW 3 Series for a Suzuki Swift as there are more manageable repayments. Our dealership handles the entire transaction and ensures all paperwork with the banks is facilitated, but we only go through with the transaction if the numbers stack up in favour of the consumer. If not, we look at other options,” says Govender.
This may include a private sale between family and friends.
“Normally, family and friends are familiar with your vehicle and offer you what you require, but don’t have the cash to complete the sale. We will assist with a dealer to check the vehicle and repair the vehicle for the new owner, as well as arrange the finance for the vehicle. This also allows the new owner to extend maintenance plans and enjoy the vehicle they are purchasing. The seller gains by maximising the sale price to offset the settlement,” he says.
ACT SOONER RATHER THAN LATER
If you are struggling with repayments, sell your car before you start missing payments. Missed payments negatively affect your credit record and increase your financing costs.
This may disqualify you from taking out a loan to meet the shortfall, which means no one will buy your car, as the bank will not hand over the title deed.
Use the amount you are no longer paying in instalments to settle that shortfall loan as quickly as possible.
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