Avoid over-indebtedness and borrow wisely in 2018

Whether it is the festive season that left you in a desperate financial position, or the costs associated with the upcoming April holidays – there are many reasons why consumers need to borrow money at this time of the year.

Regardless of the reason for borrowing, consumers must understand the cost of credit together with the terms and conditions of the credit agreement before they take up the loan. The credit provider must give consumers a pre-agreement statement and quotation when seeking credit. These will outline the terms and conditions of the proposed agreement and all costs involved such as cost of credit, interest, service fees, initiation fees, credit insurance if there is any, deposit required if there is, number of instalments, date of first instalment, date of last instalment etc.

Before extending a loan, the credit provider is required to conduct an affordability assessment to assess the consumer’s general understanding of the risks and costs of the proposed credit; the rights and obligations of a consumer under the credit agreement; the consumer’s debt repayment history and the consumer’s existing financial position.

Consumers need to be truthful and honest when providing information for a credit application, especially when providing the amount for household expenses – do not decrease the amount in order to qualify for credit as it will catch up with you once the monthly repayment amount on your loan is due.

Lastly, consumers are reminded to only borrow from an institution that is a registered credit provider to ensure they are protected by the National Credit Act.

Top tips for achieving financial wellness

  • Borrow responsibly –  Borrowing to fund your children’s education or a home loan can be a good thing, but borrowing for consumables such as groceries, 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.
  • Credit insurance – If there is, familiarise yourself with the terms of the insurance to avoid surprises when you most need the insurance. It is advisable to take out credit insurance.
  • Pay your debts on time – Paying late or not paying the full instalment will adversely affect your credit rating and possibly 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 re-arrange payments. Do not wait until you have skipped a payment.
  • Create a monthly budget and stick to it – Work out how much income your family earns and what your total expenses are each month. Use the formulas provided in the ‘Top tips to compile a budget’.
  • Start saving consistently – Put aside at least 15% of your income every month in a savings account. Remember to save for your retirement as well.

Adapted from article issued by the National Credit Regulator (January 2018)

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