Wheels banks are reconsidering their vehicle finance operations and are increasingly shying away from extended payment terms and the lack of a deposit being made on a new car purchase.
After the introduction of the National Credit Act (NCA) in June last year the whole structure of instalment payments for vehicle purchases was changed. Prior to the NCA, the maximum period of repayment was limited to 54 months with a deposit of 10percent of the value of the car.
Since last year, however, payments have been restructured and can be spread out over 72 months, with no deposit.
Marcel de Klerk, managing executive of Absa vehicle and asset management, said that banks had become very concerned about the number of vehicles being repossessed.
"We are repossessing about 1350 cars a month which is 40percent higher than a year ago, while all the finance houses are repossessing between 6000 and 7000 vehicles a month."
Absa is the second largest vehicle finance house in South Africa, with about 27percent of the market, marginally below WesBank. Before the NCA was introduced, about 90percent of loans were accompanied by a 10percent deposit, but today, about 50percent of the finance book has no deposit.
Another aspect of the problems facing the banks is that with a vehicle financed over 72 months and with no deposit a normal family with perhaps a R12000 gross salary could afford a car worth R100000.
Under the new terms, customers believe that they can now afford a car worth up to R140000. They fail to understand that instalments over the longer period cost substantially more in interest charges and that items such as insurance and maintenance costs soar.
The banks are reluctant to repossess a car as usually both the bank and the customer suffer financially.