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When it comes to credit, you want the best deal possible. All credit providers structure their offers a little differently, so what appears to be a good deal at first glance may end up being costly. Knowing what to look out for makes it easier to tell which offer suits both your needs and your pocket.
WHAT IS GOOD CREDIT?
It’s important to get credit for the right reasons. Good credit helps you live better in the long run. Good credit is a home loan, credit to buy a reliable car, to start a business and credit for education or renovations to increase the value of your home.
HOW TO GET THE BEST DEAL:
When you want to apply for credit it is important to compare offers from a few credit providers before accepting an agreement.
There are three ways to compare the offers:
- The interest rate you are charged for credit;
- The loan term; and
- Fees, costs and charges.
Tip – to make a fair comparison between different credit providers, ensure that the loan terms and the loan amounts being compared are the same.
Make sure the credit provider is reputable and registered. This is important because it means they comply with the law and will respect and protect your rights as a consumer.
Once you have chosen a credit provider, go back to your budget and see if you can afford the monthly instalment shown on the quote and still have enough money saved for emergencies. If the answer is yes, you can proceed.
WHAT CREDIT PROVIDERS LOOK FOR:
Credit providers will always make sure you can afford to repay your loan. They want to see how much money you have left after all your monthly deductions and expenses. That amount is used to work out how much you can afford to repay on a new loan, which is called your affordability.
This is what credit providers will look for:
- Your salary slip – this shows the credit provider how much money you take home every month. If your income varies because of commission or overtime, the credit provider will calculate an average based on the income over a period of three to six months.
- A three-month bank statement – this shows how much you already owe and if you will be able to afford a new loan on top of other financial commitments.
- Your employment – it is important for credit providers that you have stable employment. They will want to know how long you have worked for your current employer.
- Your credit behaviour – the better your credit behaviour, the higher your chances of being approved for new credit. Your willingness to repay outstanding credit affects a credit provider’s decision to lend you money.
They can see your payment history and credit behaviour on previous loans by looking at your credit profile, which is kept by a credit bureau. Only when credit providers are comfortable that you can pay back the loan will they make a credit offer.
FEES, CHARGES AND OTHER COSTS OF CREDIT:
Credit can be useful to help you achieve your goals. However, it’s important to remember that borrowing money is never free.
Initiation fee – this is a one-off fee for entering into a credit agreement. You can pay it upfront or add it to the total amount you borrow.
Service fee – credit providers can charge a monthly administration fee.
Interest – credit providers charge an added percentage of the amount you borrowed as interest, which means you pay back more than you borrowed.
Credit insurance premium – credit providers insist you take out credit insurance to cover your debt in case of death, temporary or permanent disability, unemployment or the inability to earn an income,
Duration – how long it takes you to repay your debt also affects the total cost of your credit.
Remember that the fees and charges add up over time.
- This project is reported by City Press and paid for by Capitec
