"It is tempting to purchase things you might not otherwise be able to afford on credit, but debt can be a major drain on your finances and dent your long-term financial goals," says NDMA CEO, Magauta Mphahlele.
She says just because lenders may be willing to give you a loan, does not mean you should take up the loan or the full amount offered.
"Before taking on credit make sure that you have enough money to cover your regular expenses, emergencies and future price increases. Taking all these factors into consideration, can you afford the repayments on the money you borrow over the term of the loan, in addition to what you already owe?"
Important expenses to consider include household and car maintenance, school fees, transport, food and municipality bills. It is also important to set money aside or have insurance to cover emergencies like illness, death and retrenchment. She suggests drawing up a budget to determine regular expenses and income. Under the National Credit Act (NCA), lenders are also required to do a thorough affordability assessment to ensure that you can afford to repay the debt.
"Make sure you honestly disclose all your expenses and are upfront about how much other debt you already have. You don't want to get into a situation where your loan is possibly reckless and you lose your rights to claim reckless lending."
She also warns against borrowing money from some informal lenders that may not comply with the law, especially about the interest they charge and their collection methods. "All lenders, whether registered or not, are required to comply with the NCA and it is important for consumers to understand their rights and obligations. The retention of ID books, bank cards and pin numbers is outlawed and should be reported to the National Credit Regulator (NCR)."
She adds that consumers should also be aware of garnishee orders. These allow the lender to deduct repayments directly from a salary after the obtaining of a court order by the credit provider. In particular, be aware of signing blank consent forms or any other document that consumers do not understand. Consumers can approach the NDMA for advice if they are not sure of what their rights or options are.
It is also important to be proactive in handling any repayment problems. Contact the lender or the NDMA as soon as one thinks one may not be able to make a payment, as one may be able to work out a solution. If one falls behind on payments and one does not act early, one may also face late payment charges as well as collection and legal fees, which can add up to many times the amount initially borrowed.
Borrowing tips:
