WesBank: Value-added products help protect your prized vehicle, but might impact interest and monthly payments

Value-added products help protect your prized vehicle, but might impact interest and monthly payments

09 July 2024 – The number of registered cars in South Africa has been on a steady increase for as long as the records show. According to the National Traffic Information System (NaTIS) data, South Africa had 11 760 886 registered self-propelled vehicles in January 2023. This is a sizable increase from the 9 600 412 vehicles recorded at the end of 2015, which supports the view that car ownership remains an important empowerment tool for the average South African, enabling many to reach their economic and social aspirations.

However, a contrasting and worrying picture emerges in a review of the number of cars that are insured. According to the Automobile Association of South Africa (AA), less than 70% of the registered cars in the country are insured. “This is a sign of the times,” says Lebo Gaoaketse, Head of Marketing and Communication at WesBank, “where many South Africans are able to stretch their budget to attain their aspiration of owning a car, but economic pressure forces many to cut corners when it comes to the maintenance of their vehicle.”

“This has led to a worrying trend among vehicle finance customers who cancel their car insurance shortly after taking delivery of their vehicle, which is in breach of their loan agreement which requires a financed car to be comprehensively insured for the duration of the finance term.”  

To help their customers protect what, in most cases, is the second most valuable asset they’ll own, financial institutions have developed a variety of value-added products (VAPs), including insurance policies that are paid for on a month-to-month basis, as well as term VAPs, like a maintenance plan, that can be financed along with the vehicle and paid off over an extended period.

“Adding a term VAP such as a maintenance plan to your finance agreement makes paying for it more affordable because you are able to pay it off in monthly instalments, instead of paying a lump-sum upfront. While it is more common and convenient to add term VAPs to the finance contract at the point of sale of the vehicle, meaning the cost of the product is added to the outstanding capital debt at the start of the finance term, it is also possible to add them post point of sale. But the customer would have to go through an affordability check once again to ensure that they are able to afford the desired product. Month-to-month VAPs can also be purchased at any point in the ownership journey, and similarly, approval is subject to affordability checks,” explains Gaoaketse.

“It’s important to note, though, that different VAPs will affect your vehicle finance contract and the instalment you pay in different ways,” he cautions.

Month-to-month VAPs, such as deposit protector and insurance shortfall cover, will increase the monthly instalment. However, these type of VAPs do not attract interest, and will, therefore, not be considered in the calculation of the interest charged on the vehicle loan account.

Term VAPs, on the other hand, which include maintenance and service plans, extended warranties, tyres, batteries and other accessories, which WesBank customers can purchase through WesBank’s Wshop, are added to the capital debt and thus attract interest. When calculating the interest and monthly instalment payable on a vehicle finance account, this is taken into account.“When reviewing one’s account statement and the impact of the value-added products does not seem clear, it is best to enquire with your lender, who will be in a position to explain how the selected products affect the vehicle finance contract, the interest charged and the monthly instalment that’s payable,” Gaoaketse advises.


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