90-day warning for anyone selling their car in South Africa

Motorists in South Africa looking to upgrade, or even downgrade, their current vehicle may be caught off guard by an additional cost when selling, namely the early termination charge.

This is according to financial advisor and LeoFin founder Leon Vermeulen, who warned motorists that if their vehicle finance falls under a qualifying large credit agreement, settling early could mean paying more.

He explained that this is why car sellers need to understand the 90-day settlement notice rule, which could potentially save them thousands.

“If your vehicle is still financed, the outstanding amount generally needs to be settled as part of the sale or trade-in process,” he said.

“Your finance provider will issue a settlement figure based on the amount still owing, interest and any applicable charges.”

One such charge is outlined under the National Credit Act 34 of 2005, which states that certain large credit agreements may also attract an early termination charge when settled before the end of the agreement.

“Under Section 125 of the National Credit Act, a consumer may settle a credit agreement at any time. However, for qualifying large agreements, an early termination charge may apply,” explained Vermeulen.

“The National Credit Regulator explains that large agreements may attract an early settlement charge of up to three months’ interest, depending on the circumstances.”

He added that if you give notice that you intend to settle, the notice period can reduce the period used to calculate that charge.

According to the financial advisor, the earlier a seller tells their finance provider that they intend to sell, the more likely they are to reduce the early termination charge.

“If the full notice period is served, that portion of the charge may potentially be reduced to zero,” he said.

Vermeulen explained that most people only request a settlement figure when they are already speaking to a dealer or have found a buyer, adding that by then the timing may already work against them.

“You could receive a good offer for your vehicle, only to discover that your settlement figure includes an additional charge you had not budgeted for, quickly changing whether the deal still makes financial sense.”

How to potentially avoid the additional charge

South African car owners looking to sell their financed car soon may want to consider a few factors before doing so, according to Vermeulen.

“Your trade-in value is only half the equation. You also need to know exactly what it will cost to settle your finance,” he said.

“If there is a possibility that you may sell or trade in your vehicle within the next few months, contact your finance provider before the deal is on the table.”

He advised sellers to ask whether an early termination charge applies, what the current settlement amount is, how much notice is required, and how to submit it.

Vermeulen also advised finding out how the settlement amount will change over the notice period, and where possible, getting the responses in writing.

“The National Credit Act provides the legal framework, but your actual settlement amount will depend on your specific agreement, balance, interest rate and settlement date,” he added.

Those moving forward with a sale need to look beyond the trade-in price to calculate whether the deal is worth it in the first place.

“A dealer may offer you R300,000 for your car, but if your settlement amount is R285,000, plus additional charges, the deal may look very different,” said Vermeulen.

He added that a useful starting point is to calculate approximate equity by subtracting the settlement amount from the vehicle’s value.

“If the settlement amount is higher than the value of your car, you may be dealing with negative equity, which could affect the cost of your next vehicle,” he said.