Personal Finance | Does paying extra on your car finance make a difference? Yes, it does!

PERSONAL FINANCE

MIKE ASKED:

I have been told that making higher payments towards car finance will not make a difference because I’ll still be liable to pay the initial interest amount agreed upon.

Is this true?

CITY PRESS REPLIES:

This is not correct. There is often confusion around the original quote provided by the bank and what your obligations are.

According to Absa, making additional payments to your principal debt does make a difference in reducing the interest that you are liable for in the future. You can even decide how to allocate those additional payments.

  • You can also choose to reduce your balloon payment (if you have one);
  • Reduce your monthly instalment; or
  • Reduce the term of the loan.

It is important to note that if a customer makes additional payments on their vehicle loan account, they would need to formally communicate with the bank how the additional payments should be applied to their account – either to reduce their balloon payment (if applicable), reduce their monthly instalment, or the remaining term of the agreement.

READ: The 12-month financial plan

The National Credit Act states that a credit provider (the bank), must credit each payment made by a customer firstly, to satisfy any due or unpaid interest charges, and secondly, to settle any due or unpaid charges.

Thereafter, the payments are allocated towards the principal debt. This is particularly important to note in cases where accounts are in arrears.

LESEDI WRITES:

We were married in community of property in 1998. We were divorced in 2019 and in 2021 we came together but decided to remarry in a traditional ceremony by our chief.

Is that regarded as marriage or life partnership? If it’s a marriage what kind is it and what does it mean for our assets?

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CITY PRESS REPLIES:

In 2000 the Recognition of Customary Marriages Act came into effect. This gives partners in the union the same rights as those in a civil marriage, including the default marriage regime of in community of property. That means you are married under community of property and all your assets will be shared equally. This also includes all the debts.

If you are concerned about division of assets, it may be worth having an ante-nuptial contract put in place.

EVEYLN WRITES:

What are the rights of a wife who is married in community of property and not nominated on the pension fund form after her husband death? Could another person, such as a brother who is nominated, receive a larger sum than the wife?

CITY PRESS REPLIES:

When it comes to death benefits of a retirement fund, it is important to note that while your nomination form can assist the trustees in identifying and contacting the beneficiaries, they are still obliged to identify all the legal or financial dependants.

The trustees should ensure that the death benefit is distributed equitably among the dependants.

If for example the nominated beneficiaries are not financially dependent on the deceased and there are other dependants not included on the form, the nominated beneficiaries may receive no money.

READ: Personal Finance | Life partner will have same right as spouse

The trustees will do an investigation into the dependence of any surviving legal dependants. Legal dependants include a spouse, parents, and children, among others. However, anyone who can prove that they were financially dependent on the deceased has a rightful claim on some of the proceeds.

This could include a child from another relationship, a parent or even another partner who was financially supported by the deceased member.

Once the trustees have identified all the dependants, they distribute the benefits according to the level of dependence. For example, if a member of the fund was married and had one adult child who was employed, then the spouse would receive the full benefit.

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However, if the child was still living at home, or studying and was therefore dependent on the deceased, then they could have a claim. This does assume that there were no other dependants. Minor children from other marriages or relationships would also be considered in the dependency assessment.

MBUYISENI ASKS:

Can I use the advance payment on my car loan to settle the amount that I am currently owing?

CITY PRESS REPLIES:

If you pay in extra on your car finance each month, it is allocated to an “advance payment” account.

What causes confusion is that these advance payments and the interest accrued are reflected separately on car finance statements and may cause confusion for customers, so it’s always best to contact the bank directly for them to assist with an explanation.

Once the advance payment reaches a sizeable amount, you can contact the bank and ask for a change to the contractual arrangement. You could ask for the advance payment to be capitalised, which reduces the term of the loan, or change your monthly repayment. But you need to contact that bank and make these changes.

OBAKENG WRITES:

We were attempting to pay funds to a family member. We sent a WhatsApp message to the relative asking for their banking details. We did not realise that we had an old cellphone number and had accidentally sent the message to the wrong person.

This person sent us their banking details and we made the transfer, not realising we had been duped. We have asked the bank to reverse the transaction immediately, but it says it cannot.

The person refuses to refund us, what can we do?

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CAPITEC REPLIES:

All banks adhere strictly to the Payment Association of SA’s (Pasa) regulations. As per these regulations, a bank unfortunately cannot make provision for a dispute resolution process for incorrect transfers between two users.

The bank will then work with the police to provide all necessary information as specified by Pasa regarding the incorrect transfers.

LEBO WRITES:

I have been paying a premium every month for life cover for my mortgage. Since my house is now paid off, do I qualify for part of the life cover premiums paid now that the mortgage is settled?

MATTHEW GREEN, PRODUCT DEVELOPMENT MANAGER, FNB INSURE REPLIES:

Mortgage life insurance provides you with funds to settle your outstanding home loan debt should you pass away or become permanently disabled. It also covers your monthly home loan instalments should you become temporarily disabled or retrenched.

Life insurance products are priced based on the probability of future claim and the amount we expect to pay if the claim occurs.

READ: Personal Finance | What happens to your prepaid funds when your mortgage is settled?

Mortgage life insurance cover reduces with time as the customer pays off their home loan since the cover amount paid on death or permanent disability is always equal to the outstanding balance of your bond. This results in the monthly premium also reducing as you pay off your home loan.

Mortgage life insurance typically does not automatically include any additional savings elements (for example premium cashback at the end of the bond term).

This is done to make the insurance more affordable and ensures that you only pay for the cover you need. This also allows you to take the money that would have been charged for the benefit and invest it based on your needs. You will be able to access that money in an emergency.