Selling Your Financed Car? The 90-Day Rule That Could Save You Thousands

Selling or trading in a car should be simple: get a settlement figure, settle the outstanding finance and move on to your next vehicle.

But many motorists are caught off guard by one extra cost: an early termination charge.

If your vehicle finance falls under a qualifying large credit agreement, settling early could mean paying an additional amount unless you have given your finance provider sufficient notice.

That is why understanding the 90-day settlement notice rule could potentially save you thousands.

What Happens When You Sell a Financed Car?

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

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

Under South Africa’s National Credit Act 34 of 2005, certain large credit agreements may also attract an early termination charge when settled before the end of the agreement.

This is where planning ahead matters.

What Is the 90-Day Settlement Rule?

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.

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

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

In practical terms:

The earlier you tell your finance provider that you intend to settle, the more you may be able to reduce the early termination charge.

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

Why Motorists Often Miss This

Most people only request a settlement figure when they are already speaking to a dealer or have found a buyer.

By then, the timing may 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.

That can quickly change whether the deal still makes financial sense.

A Real Example

Leon recently experienced this himself when obtaining a settlement figure for his Suzuki Jimny.

The settlement included an additional R5,387 early termination charge.

That is real money — and exactly why it pays to understand your finance agreement before selling or trading in your vehicle.

The important lesson is simple:

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

Thinking About Selling? Contact Your Finance Provider Early

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.

Ask:

• Whether an early termination charge applies.
• What your current settlement amount is.
• How much notice is required.
• How notice should be submitted.
• How the settlement amount will change over the notice period.

And where possible, get the requirements 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.

Don’t Look at the Trade-In Price Alone

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.

A useful starting point is:

Vehicle value – settlement amount = approximate equity

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.

Your Car Is Part of Your Bigger Financial Plan

Buying, selling or upgrading a vehicle is not only a motoring decision.

A new instalment can affect your:

• monthly cash flow;
• savings;
• insurance costs;
• debt commitments; and
• long-term financial goals.

Instead of only asking, “Can I afford the monthly instalment?”, ask:

“How will this decision affect the rest of my financial plan?”

Ask Leonfin Before You Make the Move

Before selling or trading in your financed vehicle, request the settlement figure, check whether an early termination charge applies and understand your notice requirements.

A little planning now could save you unnecessary costs later.

Have a question about your vehicle finance or another financial matter? See our services here.