For motorists already struggling to keep up with vehicle repayments, losing their cars can be only the beginning of their financial difficulties. Even after a vehicle has been sold, borrowers may still owe their lenders substantial amounts, potentially leaving them facing years of further repayments.
Recent High Court judgments and complaints resolved by the National Financial Ombud Scheme (NFO) illustrate the financial consequences of vehicle repossession, including cases in which borrowers remained liable for significant shortfalls and others in which lenders agreed to write off debts or compensate consumers after procedural failures.
Figures from the National Credit Regulator (NCR), cited by the NFO, show that more than 22,600 vehicles were repossessed during the first six months of 2023, averaging about 3,770 a month.
Nerosha Maseti, lead ombud of the NFO’s Banking and Credit Division, warned in October that many consumers only investigate their rights after their vehicles have already been taken or sold.
Selling the car does not settle the debt
The NFO cautions that handing a vehicle back to a finance provider, or having it repossessed, does not automatically bring a credit agreement to an end financially.
Where the sale proceeds fall short of the outstanding debt, the borrower may remain responsible for the difference. This is known as a shortfall. If the sale generates a surplus after the debt and applicable amounts have been settled, the excess must be returned to the consumer.
The issue featured in an August Johannesburg High Court judgment involving Absa and Sifiso Jacob Masina, who financed a Mercedes-Benz V250D.
Masina disputed the bank’s accounting of manual payments he had made after debit orders were rejected. He also argued that Absa’s acceptance of further payments after cancelling the finance agreement meant it could no longer proceed with repossession.
Judge Wentzel-Thompson found that the payments had been recorded and credited, but that they had not cleared arrears of approximately R98,204.
The court ruled in Absa’s favour, confirming the cancellation of the agreement and ordering the return of the vehicle. It also found that accepting payments after cancellation did not, on its own, reinstate the agreement.
The judgment allowed Absa to return to court to claim any damages or shortfall after the vehicle had been repossessed and sold. Masina would retain the right to contest the amount claimed.
However, the judge acknowledged Masina’s efforts to settle his arrears and seek a payment arrangement, encouraging the bank to engage with him about a possible way forward that could help him avoid losing the vehicle.
Balloon payments can add to the pressure
A separate judgment in June highlighted the financial obligations that can arise when vehicle finance agreements include large final payments.
In Duma v First Rand Auto Receivables, the Mpumalanga High Court considered a financing agreement for a Hyundai Creta that required monthly instalments of approximately R6,219, followed by a balloon payment of R111,863.
Jacob Thandizwe Duma’s arrears had reached approximately R151,591 by the time of the proceedings.
Duma applied to have a default judgment obtained by First Rand Auto Receivables rescinded. The court dismissed his application and ordered him to pay costs on the attorney-client scale B.
The vehicle had already been repossessed by the sheriff in July 2024.
The case illustrates how a substantial final payment can increase the amount owed when a borrower has fallen behind on instalments. A balloon payment reduces the regular monthly instalments by deferring part of the capital owed; it does not eliminate that obligation.
The NCR advises consumers to assess the full cost of credit, including the total amount repayable over the agreement, rather than focusing only on whether the monthly instalments appear affordable.
When lenders fail to follow the rules
Consumers may also have grounds to challenge a repossession when the lender has not followed the required legal procedures.
In an October statement, the NFO outlined a complaint involving a bank that obtained a financed vehicle from its owner’s employed driver.
The owner disputed having voluntarily surrendered the vehicle. The bank was unable to produce a signed surrender document or a court order authorising the repossession.
The vehicle was nevertheless sold, leaving the owner with a shortfall of approximately R300,000.
The NFO recommended that the bank write off the outstanding debt, a recommendation the bank accepted.
In another complaint, a bank retained a financed minibus taxi that had been impounded at the South Africa-Zimbabwe border after illegal substances were found in a passenger’s possession.
Although the vehicle’s owner and driver were cleared of involvement, the taxi was released to the finance provider.
The NFO found that the owner had breached the finance agreement by allowing the vehicle to cross the border without complying with the agreement’s requirements. However, it also found that the bank had failed to follow the proper repossession process.
The ombud recommended R30,000 in compensation and the cancellation of legal and storage charges. The bank accepted the recommendations.
The cases demonstrate that a consumer’s contractual obligations and a lender’s duty to follow the law are separate issues. A borrower may have breached a finance agreement, but that does not remove the lender’s obligation to comply with the applicable enforcement procedures.
What motorists need to know
Maseti says voluntary surrender and repossession are legally distinct processes.
Under section 127 of the National Credit Act, consumers can initiate voluntary surrender by giving their credit providers written notice. The legislation sets out procedures for notifying consumers of the estimated value of the goods and for selling them.
Where a lender seeks to enforce a credit agreement and recover a vehicle without voluntary surrender, it must follow the applicable legal process, including obtaining the necessary court authorisation.
The NFO advises motorists who are struggling with repayments to contact their lenders as early as possible, read default notices carefully and keep records of payments and correspondence.
Consumers should also establish the authority of anyone arriving to collect a vehicle, particularly if they have not agreed to surrender it voluntarily.
Before signing voluntary surrender documents, motorists should ask how the vehicle will be valued and sold, and establish whether they could remain liable for a shortfall.
Anyone who believes a vehicle has been unlawfully repossessed or sold should first lodge a complaint with the lender. If the dispute remains unresolved, the consumer can approach the NFO, which provides free dispute resolution services.
The NFO can be contacted on 0860 800 900.
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