Most of us are aware that we can bid on cars at bank repo auctions and the like but how do we really know what we are getting and how big are the risks involved when purchasing a vehicle in this way?
A bank repossessed vehicle is a car that has been reclaimed by the bank (or other financial institution) after the previous owner defaulted on the loan payments. In today’s economic climate, many people find themselves in debt and are unable to keep up with monthly instalments. If this is the case, the bank (or other lender) needs to recoup any money they have lost in the process.
The vehicle is usually taken back into the banks possession where it can be resold to cover any losses incurred.
Question: Why are bank repossessed vehicles often cheaper than other used vehicles?
- Banks and other lenders don’t necessarily want to make a profit on the vehicle – they simply want to get their money back.
- Buying repo vehicles is a gamble as the condition of the car is often unknown. This risk means a cheaper price tag that can either work in your favour or go the other way.
- Lenders usually would like to sell the repo vehicle as soon as possible; urgent sales leading to lower prices.
- If you need financing for the vehicle, the bank may be more lenient so that they can sell the car as quickly as possible without the delays of waiting for financing approval.
Understand the risks:
- The actual condition of the vehicle can be unknown, as the vehicle history may be incomplete and is not always available.
- Repossessed vehicles often do not come with warranties should anything go wrong (largely due to the unknown condition of the vehicle).
- If the previous owners have been struggling to make ends meet, they likely haven’t kept the car in a well-maintained and serviced condition.
- Repo vehicles are usually sold voetstoets (as is). This means that you will be responsible for any work that needs to be done to the car after it has been purchased.
So yes, there are risks involved when purchasing a bank repossessed vehicle, but if you are a savvy shopper, these risks can be avoided and you can go on to purchasing your dream wheels at a bargain price.
Keep these tips top of mind:
Tip # 1: Market value
Know the market value of the repossessed vehicle you are interested in to avoid over-paying for the car. To know the market value, you will need to get some idea of the condition of the car so inspect the car thoroughly or as much as you can before placing an offer. If possible, bring along a mechanic or someone who will be able to identify the working condition of the vehicle.
Image: A good mechanic will have an eye for any faults
Tip #2: Spot the difference
Know the difference between a repossessed vehicle and a salvage vehicle – a vehicle that has been salvaged has undergone damage of at least 70% of its value. Often these cars are only good enough for the junk yard, or for the salvage of a couple of parts.
Tip #3: Visit a repossessed car dealer
Rather than risking it at a repo vehicle auction, visit a dealership that specializes in repossessed cars. Although you are including a middle man in the equation, you know that they have experience buying these vehicles and will charge a fair price.
You will also be able to do a more thorough inspection of the vehicle such as taking the vehicle for a test drive, as opposed to a quick look in the high pressure auction environment. Additionally, many of the best repo vehicles are snatched up by dealers at dealer-only auctions before they get to the public.
Tip #4: Avoid older models
When buying a repo vehicle, try keep to those that are less than 18 month old, as a newer car means fewer problems.
If you feel confident that you can avoid the risks posed when buying a repossessed vehicle by shopping smartly, you can certainly find some budget-friendly bargains. If you feel that you don’t know enough about the car and its condition and history, however, leave it to the scrap yard to avoid landing yourself a dud on wheels.