In tough times we all start struggling to keep up with big repayments. Here, we get advice from Keith Watson who is head of Strategy and Business Support at Standard Bank on what to look out for when buying a car, and what to do if you can't keep up with repayments.

When buying a vehicle:

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Buying a car is an exercise that has changed somewhat in the wake of increasing interest rates, inflation and regulation. Now more than ever, the potential buyer needs to carefully assess various factors.

1. Evaluate the various finance options available to find a financial solution that suits one's needs and circumstances.

Finance options include:
a. Rental: A rental is a long term contract where the bank retains ownership of the car and takes full responsibility for depreciation and risk. In effect, the consumer uses the car for an agreed period of time and then returns it.
b. Instalment sale: Suitable for those that wish to own the vehicle at the end of the contract, the full value of the car is financed and repayments are higher. However, consumers can opt for a lower monthly repayment, making the final balloon payment (the outstanding debt at the end of the contract). Just be aware that the balloon payment can be quite a large amount of money, so you need to be prepared to pay this.

2. Find out about linked interest rate

"When deciding on a finance option, consider the overall effect of changes in prime lending rates. Where the interest rate is linked, even a one percent increase could increase the repayment amount to a point where the consumer is unable to make the repayments," says Watson.

3. Keep a cool head

Buying a vehicle should never be a rushed or emotional decision. When considering the purchase of a new vehicle, ensure that you are not stretched to the maximum of your affordability. Buy well within your current means to ensure you are protected from any interest rate increases, petrol price increase or any other unforeseen expenses.

4. Go through a bank-approved dealership

Buy from a bank-approved dealership as financial institutions will not finance vehicles from non-approved dealerships. Do your homework regarding the type of vehicle that suits your lifestyle needs yet stays within your realms of affordability.

Standard Bank has a product that allows you to qualify for an amount of finance. You can then go shopping and as long as the vehicle you have selected remains within the pre-qualified limit, the financing process is simpler.

Vehicle Repossession

When would a bank consider repossession?

"When it becomes clearly evident to the bank that repayment from the customer is highly doubtful, the bank will begin the repossession process. However, it is not in the best interest of either the bank or the customer to progress to this stage. We would prefer customers to retain their vehicles and we will consider all avenues of rehabilitation prior to repossessing," says Watson.

Standard Bank (and other banks) will first try to rehabilitate the customer. The customer will be given numerous opportunities to rehabilitate/bring his account up to date. It is only as a last resort that the bank will initiate the repossession process.

What is the best course of action if I am battling to keep up with my monthly payments?

Watson advises: "Customers tend to avoid the difficult discussions. However it is best to approach the bank as early as possible to discuss possible options. The later these discussions are left, generally the more indebted the customer becomes and the tougher the solution.

A customer experiencing financial difficulty will be taken through a process to assess affordability, based on which a new payment plan can be arranged. If the customer cannot meet the required reduced payments and he/she is overcommitted, a recommendation will be made to hand the vehicle over to the bank.

The most important things to remember are: buy only what you are completely financially comfortable with (do look at second-hand) and if you start heading into difficulty, talk to your bank as soon possible. We all know it's not a pleasant conversation to start, but you have to face it eventually - so the sooner you do it, the sooner the problem will be over.