If you must borrow, do it wisely

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The festive season has come and gone and many South Africans are finding it difficult to meet the financial obligations facing them at the start of the year – school fees, school uniforms, transport, rent and more. But before you borrow money, make sure you know what you’re getting into, says Anne-Carien Du Plooy, Acting Manager: Education and Communication at the National Credit Regulator (NCR).

Tips for consumers
  • According to the National Credit Act, consumers have a right to receive information in plain and understandable language and to receive reasons from the credit provider if their application is declined.
  • If all registered credit providers decline your application, your financial woes might be bigger than you realise. Seek assistance by negotiating for lower instalments with your current credit providers, paying off and closing some accounts.
  • You may need to downgrade your lifestyle. Visit your budget to check what you can eliminate and that which you can downgrade.
  • Avoid unregistered credit providers (mashonisas / skoppers). They charge exorbitant interest rates and use illegal collection methods such as retaining your card.
  • Never agree to pay an “upfront fee” – charged mostly by unregistered or fake credit providers, who have many names for it, such as attorney’s fees, release fee, “deposit”, admin fee etc. The National Credit Act says it is illegal for a credit provider to make a consumer pay them upfront. There is no deposit when taking out a loan and if you do pay upfront, you’re very likely to risk losing your money.
  • Understand the cost of credit. The cost of credit includes interest rate, once-off initiation fees, monthly service fees, credit life insurance, etc. A pre-agreement statement and quotation (valid for 5 business days) should disclose all the costs involved in the credit agreement.
  • Do not sign a blank credit agreement/document. Read the contents first, understand and ask relevant questions. Sign only when you are completely satisfied.
  • Be honest and truthful when applying. If you are dishonest about your monthly expenses when applying, you will lose the protection offered in the National Credit Act.
  • Borrow only when it is absolutely necessary to do so and avoid using credit for consumables such as groceries.
  • Understand credit life insurance – Familiarise yourself with the terms and conditions of the credit life insurance to avoid surprises when you need the cover. Credit life insurance can be a life saver when you cannot repay the debt for reasons such as loss of income, unemployment, disability etc.
  • Pay your debts on time – Paying late or not paying the full instalment will adversely affect your credit report and in turn your ability to qualify for credit in the future. If you think you cannot meet your monthly instalments, contact your credit providers immediately and re-arrange payments. Do not wait until you have missed payments.
  • Check your credit report often – You are entitled to a free credit report once a year.
  • Contact the NCR for a free educational workshop – The NCR conducts workshops for consumers around the country at no cost.

This is an edited media release from the National Credit Regulator.

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