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Thread: Instalment Sale Agreement

  1. #1
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    Instalment Sale Agreement

    I was wondering if anyone would be able to shed some light on a question I have?

    If a vehicle was purhased by way of an instalment sale agreement and the consumer decides to settle this earlier than the agreement date, what will make up the settlement amount?

    Without knowing the full extent of the National Credit Act item 125 states:
    125 (1) A consumer or guarantor is entitled to settle the credit agreement at any time with or without advance notice to the credit provider. (2) The amount required to settle a credit agreement is the total of the followingamounts: (a) The unpaid balance of the principal debt at that time;(b) the unpaid interest charges and all other fees and charges payable by the consumer to the credit provider up to the settlement date

    Since the initial contract includes an amount for interest, will the finance house be able to lay claim on that interest, or do they have to charge interest till the date of settlement, without "penalties" for early settlement?

    I could apply the same question to a vehicle written off in an accident:
    Assume a vehicle is purchased for R300k and interest amounts to R100k (total debt as per agreement = R 400k) and this vehicle is involved in an accident one year after being purchased, written off and insured at market value what will the case be:
    1. Insurer pays R 280,000 and consumer is liable for R400 - R280 = R120k, or
    2. Interest is calculated for one year (R30,000 - according to an amortization schedule) insurer pays R 280k and the consumer is liable for (300+30-280) = R50k?

    Your help will be greatly appreciated.
    Thank you.

  2. #2
    Site Caretaker Dave A's Avatar
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    I believe banks tend to treat instalment sale agreements in the same manner as financial lease agreements when it comes to calculating settlement balances. It will not include forward interest - ie the interest that will end up being paid is the interest that accrues on the capital balance up to the settlement date.

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