Balloon pops on car finance

Banks will have to rethink their vehicle financing options after new regulations governing vehicle sales were gazetted yesterday.Key among the changes made to the country’s Credit Agreement Act, which takes effect on 1 August 2016, is elimination of the option to buy at 0% deposit, as well as a stipulated maximum financing period of 54-months.Increased regulation was hinted to as far back as 2014, when Bank of Namibia Governor Ipumbu Shiimi confirmed discussions with the Ministry of Finance to address loopholes in the said Act, which he said forced many citizens into unsustainable debt, further hurting the country’s foreign reserve stock.While the banking sector’s established practice of offering residual value or balloon payment deals also featured prominently in State offices’ criticism of the industry, one local car dealer spoken to said banks will maintain discretion over such deals, though to a maximum finance term of 54 months, instead of 60. Balloon payment deals generally differ from traditional vehicle financing in that, instead of instalments being spread evenly over the finance period, some of the lump sum owed is deferred to the end of that time.While allowing the buyer to pay much lower instalments at first, the practice has come under scrutiny for leaving many unable to afford the last payment, forcing them to either sell off their vehicle, or apply for re-financing.Speaking to Namibian Sun yesterday, economist and Head of Research at IJG-Securities Rowland Brown welcomed the new regulations as the right step to take.“As the Act was highly outdated, credit extension was largely unregulated, and as a result far from ideal lending and borrowing activity was seen in the country,” Brown said.“Loans were extended to people who could not well afford them, and through extended repayment periods many ended up paying large amounts of interest on relatively small loans,” he said.“This move will tighten up lending practices and provide greater consumer protection. Moreover, this move should be positive for the country’s external position, as credit-funded imports are likely to be more contained.”The first local bank to react to the new regulations yesterday was Nedbank Namibia, which said its existing offers on vehicle financing would remain unchanged until the end of this month.“For Nedbank as a business, the amendments mean that existing products will need to be reviewed and operational developments will have to be deployed in order to provide for the new maximum periods,” the commercial lender said in a statement issued in the afternoon.“In the meantime, our current special offer on vehicle finance, which includes a 0% deposit and 60 month repayment option, along with financing at prime less 1.5% will continue until 31 July 2016 as planned,” it said.While local vehicle sales have recently shown a notable slump compared to previous years, Brown said the new legislation was expected to further impact sales. “We have already seen a large slowdown in vehicle sales over the past year. This has been driven by more cautious bank lending practices and fewer government purchases,” he said.“The change in Act will likely drive a further slowdown in sales. This comes at an inopportune time, as the economy is already experiencing a slowdown and this will add to such. However, given the rampant growth in vehicle sales over recent years, this normalisation is not altogether unexpected.”DENVER ISAACS

Balloon pops on car finance

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Namibian Sun 2025-05-14

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Balloon pops on car finance

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Namibian Sun 2025-05-14

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