Be responsible about your repayments

The latest set of interest rate cuts affected by the South African Reserve Bank (SARB) has seen the repo rates reach their lowest in over 20 years. While cash-strapped consumers have welcomed these cuts, the Credit Ombud is cautioning consumers against extending themselves with more debt.

The decrease in interest rates has certain positive outcomes for consumers, many of whom are grappling with the economic consequences of Covid-19.

These include lowered vehicle, credit, overdraft, bond and personal loan repayments, should the rate of interest on these debts have been variable.

While it may be tempting to purchase on credit because of the reduced interest rates, consumers must remain alert to these purchases being a need or a want and ultimately, coming at a cost.

Consumers also need to remember that interest rates are unpredictable and that the SARB can, and no doubt will increase the repo rate again in the future.

The National Credit Regulator reiterates that for those whose debt now costs less to pay back, these consumers should be taking advantage of low-interest rates to pay off more debt and become a step closer to financial freedom.

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The Credit Ombud has offered the following tips:

• Budget – the key is to understand how you spend your money every month and then to identify how to change your spending and to start with a savings plan.

• Ideally and if financially possible, continue making payment in terms of the original loan agreement if the interest rate was linked to a variable rate.

• Remember that it is sensible to pay a higher instalment per month, which will result in debts being paid up at a faster rate.

• If you decide to make lower payments adjusted to the reduced repo rates, then using the difference in the original instalment and the new reduced instalment, you could pay off other higher interest accruing debts.

• If you are fortunate not to have other debt, save the extra cash towards an emergency, retirement, holiday, next-big purchase or into a savings account.

• Once you pay off your credit cards with reduced interest rates savings, close these accounts so that you cannot be tempted to use them again.

By maintaining healthy monthly payments, your credit history at the credit bureau will reflect that you are a ‘credit-healthy’ consumer.

Prospective credit providers will consider your credit history when credit is extended to you in the future and you will be able to negotiate favourable interest rates.

Reward yourself in some way for your discipline and sticking to your plan to achieve your new savings goals.

The Credit Ombud is an independent office that exists to resolve complaints from consumers and businesses that are negatively impacted by credit bureau information or when a consumer has a dispute with a credit provider.

The National Credit Regulator has specified the maximum prescribed rates that consumers can be charged since the repo rate decreased.

Visit www.ncr.org.za for more information.

The Credit Ombud can also be contacted with any complaints or queries at https://www.creditombud.org.za/ or on 0861 662 837.

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 or Miné Fourie (journalist) minev@caxton.co.za

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