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Banks and private car deals

Published Mar 23, 2014

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Banks will give you finance to buy a vehicle privately, and some banks will also try to steer you away from buying a dud. In this, the last article in our six-part series on financing assets – published in association with First National Bank – we report on the conditions that must be met for a bank to facilitate a private vehicle purchase.

Buying a vehicle privately (not through a dealer) can be stressful, not only because of the risks associated with taking over a used vehicle, but also because it’s easy to fall victim to a scam. And the buyer can be exposed to even more risk if he or she has to borrow money to finance the purchase.

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The banks are willing to lend you money to buy a vehicle that is sold privately, because they recognise that there is value for you in buying second-hand.

“You might be able to get more value for money when buying privately than you would if you bought from a dealer, because the vehicle has already depreciated, and included in the price would be all the extras that the initial owner paid for upfront,” Jan Kleynhans, the head of vehicle finance at First National Bank (FNB), says.

It’s also not in the banks’ interests for you to buy a “lemon”. If your bank lends you money to buy a vehicle that, it emerges, has a serious fault and you cannot afford to fix the vehicle or pay back the loan, the bank will be saddled with a bad asset and have little chance of covering its losses. This is why bank-financed private deals are subject to certain conditions. For example, you might not be given finance for a car that is older than 10 years or has a high mileage. These restrictions are for your protection and the bank’s, Kleynhans says.

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If you earn at least R6 000 a month (before tax) and have a clean credit report, you can apply for private vehicle finance at FNB.

FNB will consider your application if the vehicle is not older than 10 years and you want to borrow at least R30 000.

FNB does not have a restriction on the maximum mileage of the vehicle, but it does insist that an FNB-approved testing station inspects the vehicle.

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FNB has partnered with Dekra, which has about 45 test centres countrywide. For R621, Dekra will carry out a roadworthy test and a 101-multi-point inspection of the vehicle. The cost of this must be borne by the seller.

When a vehicle changes ownership, it must pass a roadworthy test before it will be registered in the new owner’s name. A roadworthy certificate is valid for 60 days.

Kleynhans says FNB relies on the expertise of the testing stations, because a dealer is not involved.

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Another condition set by FNB is that the deal meets the compliance requirements of TitleGuard, which specialises in vehicle title clearance.

“TitleGuard underwrites the risk aspect and facilitation of a private deal for FNB,” Bert Carstens, managing director of TitleGuard, says.

Among other things, TitleGuard checks that the seller is the legitimate owner of the vehicle and if there is anything owing on the car. It also carries out an insurance assessment, which reveals whether the vehicle has been in any major or undisclosed accidents and whether the vehicle has been rebuilt. The buyer pays for this service, which can be paid for separately or included in the loan amount.

If it comes to light that the vehicle has been rebuilt and you choose not to proceed with the deal, there is no fee. “TitleGuard will not charge you for a deal that is not successfully concluded,” Carstens says.

If the check reveals a latent defect, both the buyer and the seller are informed, and if they cannot reach an agreement that is satisfactory to all parties, the deal will not proceed. For example, the seller is expected to pay for the repairs, but if he refuses and agrees to drop his price instead, the buyer may agree and proceed with the deal.

Carstens says the seller is expected to pay for the repairs, because he or she is usually paid the retail price of the vehicle, as opposed to the trade price, which is what the seller would get if he or she sold the vehicle to a dealer (see “Definitions”, below).

“The final decision as to whether there is a deal will rest with TitleGuard, as we have to consider the bank’s exposure in each instance,” Carstens says. For example, if the insurance assessment reveals that the car has been in a major accident, with repairs of up to R100 000, TitleGuard may cancel the deal and advise the buyer to find another car.

Where the Consumer Protection Act fits in

In terms of the Consumer Protection Act (CPA), you have the right to receive a vehicle that is free of any hidden defects, but only if you buy the vehicle from a dealer. For this reason, a bank might recommend that a private purchase is facilitated by a dealership.

If any defects are discovered within six months of the date of the sale, in accordance with chapter 2, section 56 of the CPA, you have the right to insist that the vehicle is repaired or replaced, or that you are given a refund.

Wessel Steffens, the head of vehicle and asset finance at Absa, says Absa prefers – but does not insist – that you go through a dealer when applying for finance in a “private-to-private” deal.

The bank has appointed about 100 of the 2 500 Absa-approved dealers countrywide to facilitate private-to-private deals. If you go this route, you will be liable for a dealer fee, which, Steffens says, is three percent of the selling price, up to R7 500. “This fee is negotiable with the dealer,” he says.

The dealer fee covers:

* A comprehensive inspection. The buyer or the seller will pay for any repairs.

* The roadworthy certificate.

* Ensuring that any outstanding debt on the vehicle is settled “and that the seller receives what is due”.

The dealer will also arrange for the licensing and registration of the vehicle in the buyer’s name, with Absa as the titleholder. This is normally paid for by the buyer, he says.

Steffens says that although the vehicle will be “dealer stocked” – in other words, the property of the dealer – “the seller warrants the vehicle to the extent that it is agreed upon between the parties”.

Gary Ronald, the head of public affairs at the Automobile Association of South Africa, says that, under the CPA, motor dealers may not sell a vehicle “voetstoets”, even if they disclose that it has faults.

“A vehicle can be sold ‘voetstoets’ only in a private sale, but this doesn’t mean the buyer is left high and dry. In order for a car to be sold ‘voetstoets’, a full list of all known defects has to be provided. As part of the sale agreement, you, the buyer, would then have to sign and acknowledge the presence of these defects,” Ronald says.

To qualify for private vehicle finance from Absa, the car you are buying must not be more than six years old and you must be borrowing no less than R20 000. There are no restrictions on the mileage.

Steffens says you should exercise extreme caution when buying a car from a dealer that is not approved by a bank. “The banks assess the financial performance of the dealer and look at the quality of the stock on the dealer’s floor.”

Nedbank and Standard Bank

Nedbank and Standard Bank also finance private deals.

To qualify for private vehicle finance from Nedbank, the vehicle must not be more than 10 years old and you must be borrowing no less than R30 000. There are no restrictions on the mileage.

To qualify for private vehicle finance from Standard Bank:

* The vehicle must be under five years old.

* The odometer reading must be less than 110 000 kilometres.

* You must be borrowing more than R40 000.

* Either the buyer or the seller must have a Standard Bank current account or be a vehicle and asset finance customer of good standing.

* The seller must be able to prove that he or she is the legitimate owner of the vehicle. This can be:

– A letter from the institution that is financing the vehicle, as well as a copy of the vehicle registration documents showing that the seller is the registered owner;

– A letter from the institution that financed the vehicle confirming that the loan has been settled in full, as well as a copy of the vehicle registration documents showing that the seller is the registered owner; or

– As proof that the dealer was paid in full, a certified copy of the invoice and the receipt, and a cancelled cheque and a bank statement, as well as a copy of the vehicle registration documents showing that the seller is the registered owner.

DEFINITIONS

The retail price is the price at which a motor dealer will sell a vehicle to you. Dealers often refer to a vehicle’s “book value”. Book value can mean either the retail price or the trade price, depending on whether a dealer is selling you a vehicle or buying one from you when you trade in your car.

Trade price is a term used by motor dealers. Generally, a dealer will offer you a price for your traded-in vehicle at something along the lines of “trade minus X percent”, because, before the dealer can sell the “traded-in” vehicle, it may need a service and/or new tyres.

INSTALMENT SALE

When your bank finances a private sale, you enter into an instalment sale agreement with the bank. This is a credit agreement in terms of which the bank owns the car until you have paid for it in full.

You pay off the loan in equal instalments over the loan term, which could be from 12 months to 54 months. The interest rate for which you qualify will depend on your credit profile.

INSURANCE OPTIONS

A bank may offer you a host of insurance products if it finances your vehicle purchase.

Comprehensive insurance could well be a condition of the loan, because it covers you – and the credit provider – in the event of theft or hijacking, or if you damage another person’s property.

Even if the bank does not insist on comprehensive insurance, any vehicle that is being financed should have this cover. Failure to insure your vehicle could result in financial disaster for you: if your car is stolen and you are not insured, you will have to repay the loan out of your own funds.

Dennis Jooste, the Ombudsman for Short-term Insurance, advises that you pay careful attention to how an insurer values your car, because the value affects not only the premium but also the amount that the insurer will pay out if you claim.

Many insurers will not insure your vehicle for more than the retail price in the TransUnion Auto Dealers’ Guide. Some insurers will insure your car for its market value, which is the mid-point between the trade value (the price a dealer will pay you for your vehicle) and the retail value (what a dealer would sell your car for).

In addition to comprehensive insurance, you might be offered:

* Life or disability insurance, which will cover the debt if you die before the loan has been paid off or if you cannot work because you become disabled. The bank is entitled to make this cover a condition of the loan agreement, but it cannot make you take out cover with a particular insurer.

* Retrenchment cover, which can be included in a credit life insurance policy or be sold as a stand-alone policy. Typically, it will pay your car instalments for a limited number of months. For example, the policy offered by Wesbank pays out for up to nine months, while Standard Bank’s pays out for up to six months.

* Credit shortfall insurance, also known as top-up insurance, which covers the difference between what you owe the bank and the insured value of your car. Your total loan (capital, plus interest and finance charges) can exceed the insured value of the vehicle by many thousands of rands. Credit shortfall insurance usually pays out in the event of a total loss. Remember also that cars depreciate over time.

* An extended warranty, which covers mechanical failure after the manufacturer’s warranty expires.

Insurance premiums should be paid separately from your loan instalments, or you will pay interest on your premiums.

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