Bayport Blog

Understand your credit agreement to protect your credit record

What is a Credit Agreement

A credit agreement is a legally binding agreement between yourself and a credit provider. The credit provider agrees to provide goods, services, or a cash loan to you, with the understanding that payment will be delayed or paid of over a period of time at an amount agreed by both parties. This agreement usually incurs an additional interest amount and other fees or charges in exchange for this agreement.

It is a legal document that sets out all the terms and conditions of your acceptance of credit, including specifying the expense of interest, fees and charges on money borrowed.

Once you have signed this agreement with your credit provider, it means that you have voluntarily committed to the terms and conditions therein, and that you promise to honour your obligations contained in the agreement.

Honour and manage your debt responsibly to maintain a healthy credit score

If you want to maintain a healthy credit history and want to avoid getting into hot water later on, it’s vital that you understand what you have agreed to and what your rights and responsibilities are and that take responsibility for honouring your commitments to your credit provider:

• Read the fine print: Make sure that you understand everything in the regarding repayment of the loan amount or credit card debt and if there is something that you don’t understand, ask before signing anything.
• Check your statements regularly: Make sure that all the information on your statement is correct and in line with the original agreement that you signed. If not, notify your creditor immediately. Keep your receipts and do a monthly reconciliation against your statements.
• Pay your debt on time: Creditors have loaned you money with the aim that you can purchase now and pay later. It’s important that you honour your commitment to them too by making your payments on time every month, from the very first instalment.
• Pay your debt on time: Creditors have loaned you money with the aim that you can purchase now and pay later. Keep in mind, each time you skip a payment this information is sent the credit bureaus and flagged on the credit provider’s system. Skipped payments will negatively affect your credit profile.
• Avoid slipping up with a debit order payment: A debit order is an effective method to make payments since this is simpler to follow and guarantees that the payment is made on the agreed date. It will also help you with managing your debt payments since you are less likely to skip a payment when paying by debit order than when you are making cash instalments.
• Repay the full debt: When you apply for a loan, you are acquiring a set amount and are agreeing to pay interest on the outstanding balance. In the long run, you need to pay the full amount borrowed plus interest and other charges that you agreed upon when signing the agreement in order to honour your full commitment to settling your debt.
• Update your information with your credit provider: If you move or incidentally change your location, it is your obligation to notify your credit provider of your new contact number, email address, physical and postal address. If your job situation changes, you should get in touch with your credit provider and inform them, especially if it means that you are no longer earning an income or have a reduced income. If your financial situation changes, you need to discuss this with the provider and ensure that you make a new arrangement with them.

The fine print of credit agreements: What have you signed up for?

It’s important that you only deal with reputable and registered credit providers as this will ensure that you and the credit provider are both protected under certain regulations that ensures that both parties to the agreement are looked after in a fair and lawful manner. If you know that you are dealing with a registered credit provider, there should be no surprises as the terms of the credit agreement is largely regulated.

Here are some of the details that should be outlined in your credit agreement:

• When and how credit or loan payments will be made, how many payments you will have to make, and the date of the first and last payments.
• All insurance information including the monthly premium, when the policy will pay out, and fees or commission allowed to credit providers.
• How and when you will a statement.
• When and how much default administration costs will be charged.
• Your rights in regards to cancelling the agreement and the conditions under which you may be permitted to do so.
• When and how you can pay off your loan earlier than the agreement states and if there are early cancellation or settlement fees or penalties that might apply.
• The physical address (“domicilum”) where documents can be hand delivered to you.
• What penalty charges or interest will be applied for late payments or amounts in arrears.
• An opt-in section where you can select how you wish to receive communications from the credit provider as well as the types of information you wish to receive and the channel or format in which you wish to receive it. This usually applies to marketing communications as you are unable to opt-out to the official communications such as statements, notifications or any other details pertaining to the agreement.
• Your right to apply for debt counselling if you can’t make payments and how to get in touch with the credit provider in the event that you are unable to honour your commitments.
• The rights of the credit provider, such as the right to enforce the credit agreement.
• Information on how your information is reported to credit bureaus.

Understand all the fees and charges involved before signing the agreement:

Before signing the agreement, you may have already received a quotation which outlines all the fees and costs involved.

Fees and charges that you are likely to see included in your Credit or Loan Agreement:

• Service Fees – a monthly administration fee (usually up to R50) per month, which is added to your account either monthly or on an annual basis.
• Initiation fees – a once off amount that the credit provider charges you for entering into the credit agreement with them. You should be given the option to pay the initiation fee upfront and with no interest.
• Collection costs – fees that are charged when the credit provider needs to try to collect outstanding or arrears amounts from you.
• Default administration charges – fees that are charged when you fall behind on your payments. The credit provider can only charge you for the letter it will send to you to let you know that you are in arrears.
• Interest – this is the amount that the credit provider charges you for granting you credit and is charged as a percentage of the principle loan or credit amount.
• Credit insurance – credit providers may insist that you take out credit risk cover that will settle your debt in case of death, disability or retrenchment. You have the right to use an existing policy if you have one, rather than taking out a new one. Some credit providers automatically include credit risk cover in their service fees; and it’s important for you to enquire about this in advance.

Make sure that you consider all the costs before making your decision regarding whether or not you can afford the credit and if you are comfortable with all the related charges. It’s also important that you ensure that all the charges are permitted under the National Credit Act, which regulates the maximum fees and guidelines for registered credit providers.

Contact us should you wish to speak to a Bayport Financial Services consultant about a personal loan, or for advice on credit life insurance on your personal loan.