Car debt gets some into trouble

Repossession may come with a towing charge of $350 plus storage costs.

Previously, most Kiwi families owned a single car.Now it's usually two or more, writes Paul Charman

We're told the economy will do well this year but none of us know what is around the corner for us personally, says Mangere Budgeting Service chief executive Darryl Evans.

Debt, he says, and saving and living within a budget, is more important than ever.

New Zealand's "rock star economy" may have ushered in a boom in car sales but Evans cautions that 23 per cent of clients referred to the Mangere service got into difficulties through car debt. When he started his job 14 years ago, most families owned a single car but now they own two or more.

"Before signing a hire-purchase agreement, ask what happens if you miss a payment," Evans says. "If you start getting letters warning that you have fallen behind on your payments, they cost $50 to $100 each, so if they write to you three times a week it's going to be $300 at the high end.

"If they send you a repossession notice, they're often $125-$150. If they repossess the car you'll be charged $295 to $350 to tow it. It will be $15 to $40 a night for storage till your car gets sold, plus advertising costs.

"Once the car is sold, you're on a winner if the proceeds cover your costs. More often, they sell the car for a pittance. You'll have no transport but still have to keep paying down your loan." Evans has seen some finance companies fall over themselves to provide automotive loans, even when applicants have a bad credit history.

"We worked with a 23-year-old who owned three cars but not one of them worked. He purchased the first one for $6000 but quickly the engine seized. He needed $980 to replace the motor but was turned down for a loan because of his bad credit. He was allowed to buy another car on hire purchase but the gearbox seized. Then he got a loan to buy a third car which also stopped running. His finance company told him they would grant loans for additional cars, but not to make repairs.

"The client decided to jump on a plane and go to Australia but the finance company was transtasman and caught up with him there."

Evans says if people face up to their responsibilities, the budgeting service can help them get on top of their debts, such as by restructuring loan repayments over a longer term.

"It's wonderful what our staff can achieve with the people who come to us. More than 70 per cent not only succeed in clearing their debts, they're also taught life skills like wise supermarket shopping." Asked for one single tip, he warned against signing any loan agreement as a guarantor. "We see too many older people who lose their homes after going guarantor for a younger family member who gets behind on loan repayments.

"Finance companies don't seem to spend much time chasing the person who took out the loan; these days they go after the guarantor and take their assets. I've told my 12-year-old he'd better work hard at school ... and be self-reliant. There's no way I'll ever be going guarantor for him."

•Budgeting & Family Support Services provides support to the Mangere community and raises issues affecting low-income families/whanau across Aotearoa. Details: www.mangerebudgeting.org.nz

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