Nearly four in ten South Africans who have formal credit struggle to make their repayments, according to the Finmark Trust. With the cost of living going up, more people are feeling the squeeze. So your lender is
Maybe you’ve had a bad month – like an unexpected medical bill – or perhaps your circumstances have changed and you’re not sure you can still afford your current car at all. However, vehicle finance means you have a contractual obligation to make your payment every month.
A missed car payment impacts your credit score and, if this continues, can ultimately result in repossession. While repossession is a last resort, it remains on the cards if you aren’t able to make arrangements to pay. And missing even one payment will also impact your future loan applications as lenders will assess the risk of you defaulting as higher than before.
Here’s what to do when you cannot afford your car payment anymore.
Before you miss your payments
Contact your lender as soon as you realise your car finance payments are becoming unaffordable – preferably, before your debt order bounces. At this point, you are in the strongest position as you are up to date on your payments.
Your lender will be able to tell you exactly what options are open to you. For instance, if you’re expecting to get back on track soon, you may be able to arrange to pay off the arrears over a few months – as a deferred payment on the car loan.
Can I reduce my car finance payments?
If you’re in a situation where your expenses are higher than planned, and/or your income has fallen, you should consider refinancing your car. This would mean extending the term of your loan so that your monthly payments become more affordable.
Consider credit protection
When you take out high-value debt, such as a mortgage loan or vehicle finance, think about taking out credit protection insurance. This provides a safety net if you are retrenched or become disabled and can no longer meet your loan payments. If you pass away, it also covers the debt so that your dependants are not left stranded. Check with your lender to see if you already have credit protection that you can make use of.
What happens when you miss a car payment
Missing a payment is a warning sign for lenders as it signals that you may be experiencing financial distress and could miss other payments.
If a debit order doesn’t go through or you don’t pay the full instalment by the agreed-upon date, the lender will contact you to assess the situation. It’s important to make the full payment as soon as you can – or to come clean if you aren’t able to, so that you can assess your options. While a partial payment is better than nothing, you would still be in arrears and expected to make the full payment or to restructure your loan.
If your payment is outstanding for more than a month, that’s a major red flag for lenders. And the more months you skip, the higher your penalty fees will be and the higher the likelihood of adverse impacts.
Consider selling your car
If your car payment is a source of financial hardship every month, perhaps it’s time to trade it in or sell it altogether.
Remember, car repayments are only part of the total cost of car ownership. You should also budget for car insurance, petrol and maintenance. Opting for an older car or a cheaper model can also result in insurance and petrol savings. You should aim to spend no more than 30% of your income on your car – including all costs.
Doing nothing is the worst thing you can do
Don’t ignore calls from your lender. If they aren’t able to reach you, they will assume the worst and hand over your account for debt collection – especially if you start missing multiple payments.
It is much easier to deal with your lender directly rather than through a debt collection agency when fees will be higher and it could be more difficult to make a payment arrangement.
If you made an arrangement with your lender to pay back the arrears, it’s important to stick to this agreement. Defaulting on this arrangement will send a strong signal that you’re in financial trouble and can’t meet your obligations.
Ultimately, your lender could ask for a judgment against you which would allow for your goods to be repossessed to pay your debt.
Ask for help when you need it
Managing financial uncertainty and dodging debt collection calls is enormously stressful. If you’re feeling overwhelmed and unable to meet your obligations, it may be time to consider debt review. This will give you legal protection while helping you negotiate more affordable payment plans.
Debt Rescue has over 15 years of experience in helping South Africans to manage their debt. Our debt counsellors are registered with the National Credit Regulator and can guide you towards long-term financial stability with affordable repayment plans and legal protection. Contact us today for an obligation free quote.