Car loan refinance
If you are having difficulty meeting the payments on your car loan, your first step should be to check your loan agreement to see if the car is secured under the loan.
Most loans for cars are secured loans; which means that the car may be seized if the required payments are not made. If the car is not security for the loan, your lender cannot seize it unless they have a court order authorising the Sheriff to take possession of the car. This process can and does happen very quickly.
If your car is used mainly for business or employment purposes it is excluded from the protection of consumer credit law; your lender may not be obliged to consider your request for flexible payment arrangements unless it has signed the code of Banking Practice.
If your car is security for the loan
If you purchased your car from a car-yard and the dealer organised the finance for you, then it is likely that the car is security for the loan. Under these circumstances, your lender can seize the car if you do not make payments according to the loan agreement. This means:
- your lender will be able to repossess the car if the loan falls into arrears. Your lender will need a court order to repossess your car if the amount currently owing is less than 25% of the principal originally advanced or $10,000 (whichever is the lesser amount); and
- costs associated with repossession and selling the car will be added to the total amount you owe; and
- if money from the sale of your car is insufficient to pay out the loan (as is often the case due to interest charges and depreciation) you will still owe the lender the outstanding balance.
A lender or repossession agent cannot repossess your car from your property without your written consent or a court order. You can refuse to sign the consent form and seek legal advice. However, the lender or repossession agent can repossess your car without consent if it is parked outside your property, including at your place of work.
If your lender threatens to repossess your car, you can contact the relevant industry ombudsman or take the matter to court urgently. Your application needs to include a request that all enforcement action be put on hold.
If your car is not security for the loan
If you purchased your car using an unsecured or personal loan, you have a number of options for approaching your lender and asking for consideration in light of your changed circumstances.
Find out more about:
- your rights for negotiating a hardship variation for your loan, including how to proceed if your lender refuses your proposal.
- the range of options available for paying your loan.
- debt collection procedures for when you don’t pay your loan.
Luke was retrenched in January 2013. He had a car loan with a finance company which he could no longer pay in full. He therefore contacted the finance company and explained his position and asked for his car loan to be varied because of his financial hardship. He was told a hardship application would be sent to him. However, there was a delay in the finance company sending him the application and he was not able to submit it for about two months.
The finance company then failed to respond to Luke’s hardship application. He contacted the company but was told to pay what he could and that someone would get back to him.
Last week the finance company tried to repossess the car. Luke refused to allow the car to be taken. He has started a new job, but cannot pay a lump sum to pay off the arrears at the moment.
He filed a complaint with the Credit and Investments Ombudsman because the finance company was a member of this dispute resolution scheme. In the complaint he said that he made an application for a hardship variation but this was not responded to and he requires a determination (decision) of his hardship variation. He also requested that any enforcement costs incurred after he made the hardship application should be waived.