Borrow wisely and avoid over-indebtedness

It is that time of the year where some consumers find themselves having to borrow money for January expenses such as school uniforms, registration fees, stationery, transport etc.

Ms Mpho Ramapala, Manager: Education & Communication at the National Credit Regulator (NCR) says: “It is unfortunate that some consumers didn’t plan properly for New Year expenses and now have to borrow money from credit providers”.

She points out that often at this time, some consumers are desperate for financial assistance and may take out loans recklessly. She advises consumers to borrow only from registered credit providers, borrow only when they need to, plan in advance how to repay the loans and most importantly determine whether they can afford the repayments.

For a comprehensive list of registered and cancelled / lapsed credit providers, consumers can visit the NCR’s website: www.ncr.org.za.

Before taking on additional debt, consumers should take into account all their debts, including store and credit cards as well as personal loans and other commitments. “Plan to pay off as much debt as possible before taking on more credit. Most importantly, stick to and honour your credit agreement and repayments”, Ramapala advises.

Under the National Credit Act, it is your right as a consumer to be given a pre-agreement statement and quotation when seeking credit. These outline the terms and conditions of the proposed agreement and all costs involved such as interest, monthly service fees, once off initiation fees, credit insurance if there is any, a deposit if required, number of instalments, date of first instalment, and last instalment etc.

This means that consumers will know what is expected of them prior to signing the credit agreements. In addition, they will be aware of the cost of credit and the terms and conditions before signing the actual credit agreement.  If there is anything consumers don’t understand, they must seek assistance before committing themselves, explains Ramapala.

Ramapala warns that consumers should never sign blank credit agreements as they won’t have control over other information added afterwards.

She further advised consumers to check the interest rates they will be charged, as well as all other added charges.  For example, when taking out unsecured credit which consists mainly of personal loans, the credit provider may charge a maximum interest rate of up to 33.75 per cent, using the current repo rate.

However, consumers can negotiate low interest rates based on the pre-agreement statements and quotations. “These can be used to shop around for better deals.  In addition, maintaining good credit records may benefit consumers by getting better interest rates when buying on credit, advises Ramapala.

Tips for borrowing wisely:

• Borrow as little money as possible. Borrowing to fund your children’s education or a home loan can be a good thing, but borrowing for consumables to pay off other debt or to fund luxuries such as holidays or designer clothing can condemn you to a lifetime of debt. Only borrow for what you really need.
• Avoid paying over too many months as it will cost you more in the end.
• If there is credit insurance, familiarise yourself with the terms of the insurance to avoid surprises when you most need the insurance.
• Be honest – Make sure that you honestly disclose all the information required by the credit provider. Dishonesty may cause you to lose the protection offered by the National Credit Act.
• Create a monthly budget and stick to it – work out how much income your family earns and what your total expenses are each month. Will you be able to pay for your new debt once you’ve covered all your expenses? You should also plan for unexpected costs such as if one of your family members is retrenched.
• Always keep receipts of your payments as you might need these in the future.
• Always include savings in your budget.
• Pay your debts on time. Paying late will adversely affect your credit report and possibly your ability to take out credit in the future. If you think you cannot meet your monthly instalments, call your credit provider immediately and try to re-arrange payments. Do not wait until you skip payments.
• Check your credit report regularly. This way you’ll be able to identify any errors and correct them. Under the NCA you are entitled to one free copy of your credit report each year. Additional copies cost R20 each excluding VAT.

For additional information, please contact the NCR on 0860 627 627 or log onto www.ncr.org.za.