The festive season is over and it’s time for the kids to go back to school. Many people may need to borrow money this month to take care of expenses that include school fees, uniforms and transport.
Advocate Kedilatile Legodi, acting manager: education and communication at the National Credit Regulator (NCR), says: “Consumers are reminded that credit is expensive, therefore they should only borrow when it is absolutely necessary to do so and only from credit providers registered with the NCR.”
Be a credit-smart consumer by understanding the total cost of the credit you are applying for before you sign on the dotted line.
The cost of credit includes interest, once-off initiation fees, monthly service fees and credit life insurance.
To understand the cost of credit, consumers should be given a pre-agreement statement and quotation that discloses the total amount repayable for the money borrowed. This should include related costs at the end of the repayment period.
“These documents are valid for five business days and are intended to help the consumer shop around for better deals and make an informed decision”, says Legodi.
“According to the National Credit Act, consumers have the right to receive information in plain and understandable language, and to receive reasons from the credit provider regarding why their credit application may have been declined. Consumers are further advised to be cautious of unregistered credit providers and ensure they only borrow money from credit providers that are registered with the NCR.
“Unregistered credit providers usually charge excessive interest rates that are not in line with the NCA. They do not conduct affordability assessments, and they use unlawful and prohibited tactics to collect on their debt, such as retaining a consumer’s identity documents, bank cards, pin numbers and SA Social Security Agency cards,” cautions Legodi.
She stresses that it is the consumer’s obligation to be truthful and honest when applying for credit by disclosing all relevant and correct information regarding their financial status.
“Credit that is granted based on incorrect financial disclosure by the consumer may lead to the inability to repay the debt, resulting in financial distress.”
Below are helpful tips that Legodi offers consumers who are borrowing money:
- Never agree to pay any upfront costs or fees. Many consumers are duped into paying upfront fees labelled as “admin fees”, “lawyer’s fees” or “release fees”, for example, when borrowing money from unscrupulous/fake/unlawful entities, which are usually found online. In most cases, consumers lose their money (upfront payment) without getting any of the money they have borrowed;
- Borrow only when it is absolutely necessary to do so, and avoid borrowing money for consumables such as groceries;
- Do not sign a blank credit agreement or document. Read the content first, understand it, ask relevant questions and, only when you’re satisfied, sign it;
- Consider credit insurance. Familiarise yourself with the terms of the credit insurance to avoid surprises when you need the cover from the insurance. Credit insurance can be a life-saver when you cannot repay the debt for reasons such as unemployment or disability;
- Pay your debts on time. Paying late or not paying the full instalment will negatively affect your credit rating and possibly even your ability to take out credit in the future. If you think you cannot meet your monthly instalments, contact your credit provider immediately and try to rearrange payments. Do not wait until you skip a payment;
- Create a monthly budget and stick to it; and
- Check your credit report regularly.