The unwanted consequences of missing car finance payments in South Africa

If you miss a monthly car finance payment, you risk entering “default” status which could have serious consequences for your credit score, and in turn, your ability to take on new debt such as home or personal loans.

Many South African households are struggling to make ends meet in the tough economic landscape of today and this has led to a rise in loan defaults, which is when the credit seeker fails to meet the legal obligations or conditions of a loan.

As per data agency Experian’s latest Consumer Default Index (CDI) report, the CDI for vehicle finance accounts rose from 3.83 in March 2024 to 4.58 in June.

The CDI is described as the percentage of never-defaulted vehicle finance accounts that defaulted within the last three months.

A significant increase of 31% in just three months indicates that consumers are in dire financial straits, with car payments evidently being one of the first areas in which they are looking to cut costs.

Entering default status

Lebo Gaoaketse, Head of Marketing and Communication at WesBank, says that if you enter default status it will be reported to credit bureaus, and each subsequent missed payment will affect your credit score.

“Credit bureaus record this default status, and these entries can appear on the borrower’s credit report for up to five years,” said Gaoaketse.

“This means that future lenders will see you as a higher risk, making it more challenging to obtain credit or favourable loan terms.”

A high credit score signals to lenders that you are a responsible borrower and it is built up through diligently paying your loans on time and in full.

Meanwhile, a lower credit score can indicate a higher level of risk. Missed or defaulted payments can cause the score to drop, sometimes significantly.

As such, should you continue to build up arrears on your car finance contract, the repercussions will become more dire. You may potentially only receive credit approval at a higher cost, or be prevented from accessing credit altogether.

If you find yourself in a situation where making monthly vehicle finance payments has become unfeasible, it’s recommended to ask your credit provider for a revised repayment structure, which WesBank calls a Payment Arrangement.

“A Payment Arrangement does not alter the original credit agreement but instead assists customers in clearing arrears through a tailored plan,” said Gaoaketse.

If you are already in arrears, or think you might miss an upcoming payment, acting soon could help protect your credit score and avoid additional costs and legal consequences.

“When you take out a loan, it’s essential to keep up with monthly payments,” concludes Gaoaketse.

“Regular on-time payments help build a strong credit score, while missed or defaulted payments can significantly lower it, affecting a borrower’s creditworthiness for years.”