What are your options if you miss a monthly vehicle payment

While missing a payment is not ideal, if you have missed a car payment or are worried that you might, it is important to know that this does not have to result in a crisis. The most important thing is how you handle the situation.

Unfortunately life has a funny way of throwing unexpected financial curveballs at South Africans. A medical bill, a new job, or simply a month where the numbers in your budget don't add up.

When you purchase a vehicle via an instalment sale you enter into a contract with a financial services provider to repay a certain amount on a monthly basis, for an agreed contract period.

While missing a payment is not ideal, if you have missed a car payment or are worried that you might, it is important to know that this does not have to result in a crisis. The most important thing is how you handle the situation.

Vehicle finance is a partnership and like any partnership, open communication is the best way of finding a solution and moving forward.

When a vehicle finance repayment is missed, your account moves into arrears which will trigger a structured internal process. If you have not made a prior arrangement your financier will typically make contact in order to understand your situation and to remind you of your obligations.

It is important to note that having your vehicle repossessed is the absolute last resort, not a first response and there are several steps and options that can be explored well before repossession is even considered.

Unfortunately any arrears will have consequences that begin quickly. For example your monthly payment profile at the credit bureau will reflect your arrears position, which can affect your credit record. Arrears interest will also be levied on the outstanding amount in line with the terms and conditions of your agreement.

It is for these reasons that the most valuable thing you can do when financial difficulty arises is to reach out to your financier as soon as possible. The sooner that you make contact, the more options are available to you and the more willing your financier will be to work with you towards a solution.

Many financing institutions offer additional products such as credit protection that are designed to protect your vehicle finance agreement and minimise potential risks. Credit protection typically covers eventualities such as death, permanent and temporary disability, dreaded disease and retrenchment, depending on the option you have selected. If you have such a value-added product or service in place, your advisor will be able to help you understand what it covers and what options are available to you.

Financial institutions will offer you a payment arrangement service that is specifically designed to help customers resolve arrears or a possible arrears situation, within a reasonable period.

A payment arrangement is a practical, structured way to get your account back on track, even though it does not alter your underlying credit agreement. Your credit bureau profile will continue to reflect your arrears position during this period, which is why it is important to take action as soon as you see that you might miss a repayment.

If you feel that you might continue to struggle to make your monthly repayments it might be a good idea to visit a reputable dealer to establish the trade-in value of your vehicle or negotiate the sale of your vehicle. This will also help you determine if there are other vehicles available that are a more realistic option for your current budget, before you get further into trouble with your financier.

Another option could be to refinance your vehicle, especially if the settlement value of your vehicle is still higher than the trade-in value or market value. Refinancing could include extending the payment period of your loan or restructuring the loan in certain ways to make the monthly payment more manageable.

Many South Africans will experience financial pressure at some point, but what defines the outcome is how promptly and transparently payment issues are addressed. Acting early will protect your credit profile, ensure that you have more options available to rectify the situation and demonstrates to your finance provider that you are aware and committed to resolving the situation.

In most cases there will be some kind of solution that works for both you and the financing institution and most banks are happy to come to an arrangement that will help their customers survive tough times.