Managing your debt
It is not always easy to pay off debt that has accumulated over a period of time. If you foresee yourself not being able to cope with managing your debt, it is best to seek help from your credit providers to ensure that you do not get a bad credit record.
After contacting your credit providers, you will realise that you are not alone and that you can get help to better manage your debt. Here are practical tips to better manage your debt:
More FAQs and answers about credit
There are various forms of credit available to you. One example of a type of credit includes personal loans to customers and are provided by institutions who operate as a registered credit provider in terms of the National Credit Act.
What is a personal loan?
A personal loan is one of the most basic types of loans. It can be used to fund home improvements, the purchasing of furniture, travelling, emergencies or an unforeseen medical expense. A personal loan may also be used to consolidate your debt. A personal loan is a reliable option for an individual who needs access to immediate cash for personal use. There are two basic types of personal loans, secured and unsecured loans.
A secured loan requires you to offer one or more of your assets as a form of collateral. If you are unable to repay the loan, the lending institution will be able to take your assets for immediate repayment. You will generally be offered a competitive interest rate if you take out a secured loan, because the risk to a lender is not as high as in the case of an unsecured loan.
An unsecured loan does not require that you provide any form of guarantee. Consequently, you will pay more interest on an unsecured loan because the risk to the lender is greater. There are many banks and lending institutions that offer unsecured personal loans. These are specifically tailored for people who do not have any property or assets to offer as collateral.
Personal loan: The basics
You can take out a personal loan for as much as you can afford depending on the rules of the lender. Monthly repayments are usually calculated according to your loan terms and your credit score. Lenders are required to do a credit check to determine how much you can afford.
Personal loan: The lending criteria
Lenders will ask you to provide them with your most recent payslips, your South African identity document and your latest bank statement. You may be required to take out credit life insurance on your loan in the case of retrenchment, disability or death.
Buying on credit and credit agreements
When consumers need to buy items such as furniture, they often do not have enough money to pay in cash. They may then decide to buy the items on account or on credit where they repay the purchase amount and other fees over a period of time or at a later date. When consumers purchase on credit, they often purchase through a credit provider. Credit providers are formal organisations – such as banks and micro-lenders or individuals from the informal sector that lend money – or that sell goods on credit, such as retail shops.
Why people get into debt
People borrow money for various of reasons, including paying for monthly expenses – like rent and transport, emergencies – like illness or death, occasional expenses that are larger – like school fees ,car maintenance, furniture, a car, to start a small business or to consolidate debt. When an individual wants to borrow money, it is important for them to understand that buying on credit costs more than paying cash. The amount that an individual repays includes:
- The loan capital amount and
- Finance charges (includes interest on the loan, bank, service and administration charges) as well as
- Insurance premiums (if applicable)
- What the total amount for the goods will be, including all the finance charges;
- Is there a deposit payable and what will their monthly repayments be;
- The repayment term of the loan
What is a credit bureau?
A credit bureau is an organisation that keeps a record of your credit information. Your credit record shows how you manage your debts and is used by credit providers and lenders to decide if you can afford to borrow money or pay back a new loan. The National Credit Act states that each credit bureau must be registered with the National Credit Regulator – who decides how your credit information can be used and who can see your credit record.
What are the responsibilities of a credit bureau?
- To file information on your credit record after the fee is paid by the credit provider.
- To make sure the information is correct and not keep inaccurate information.
- To only keep information for a prescribed period and to a prescribed standard.
- To provide a report of the information – a credit report – when required by credit providers or anyone else who has your permission to obtain a report.
- Not to charge for corrections or challenges to the information by you, the consumer.
- Not to make a negative judgement about you when they do not have any credit information.
How can your credit information be used?
- To decide whether or not you can afford credit.
- To investigate fraud, corruption or theft.
- To consider you for employment in a position that requires trust, honesty and the handling of cash or finances.
What are your rights regarding a Credit Bureau?
- To be told that a credit provider intends to report negative information on you to a credit bureau 20 working days before they do so.
- To get a copy of your credit report from a credit bureau when you ask for it – you can get one free record each year but may be charged a small fee for further reports.
- To challenge information kept by a credit bureau if you are unhappy with it.
- For your information to be kept confidential, and for it to be used only for the purposes that are allowed.
How do you apply for your free credit report?
- Contact the credit bureau and ask them to send you your credit record.
- You should contact Transunion on 0861 482 482 and Experian on 0861 105 665.
- You will need to provide some personal information – such as your ID number and address.
How do you correct errors on your credit record?
- If you disagree with your credit record, you must send in the corrections within 30 days – during this time, you can get additional free copies of your record to check the corrections have been done. After this, you must pay a small fee for additional copies.
- Contact the credit bureau and ask for a dispute form. They will send you the form and a reference number. You can also log a dispute online on the credit bureau’s website.
- Complete the forms and send them back to the bureau with a copy of your ID.
- Include proof of the information you want changed, such as a debt clearance certificate or statement of account.
- If they have kept a negative listing longer than they should have, insist they remove the record from their system. They have 20 working days to investigate the matter.
- Ask for another copy of your credit report to check that the changes have been made.
The National Credit Act (No 34 of 2005) (NCA) which came into effect on 1 June 2007, recognizes that there are times when people need to borrow money in order to buy certain things. In other words, they need to get credit from credit providers. The NCA provides a framework for every type of credit transaction, including microloans, homeloans, bank overdrafts and furniture finance. The NCA impacts on consumers, credit bureaux and credit providers – ranging from microlenders to banks. The NCA sets out the rights and duties of both consumers and credit providers and includes measures that allow consumers to make informed decisions before procuring credit. It also places a responsibility on credit providers to ensure that they do not advance credit when consumers cannot afford it. The NCA also regulates the way in which credit bureaux conduct their businesses. The NCA replaced the Usury Act (which governed moneylending transactions), including the Exemption Notice to the Usury Act which governed micro-lending and the Credit Agreements Act (which governed instalment sale or hire purchase agreements). The National Credit Regulator (NCR) was established under the NCA and is responsible for enforcing the provisions of the NCA. The NCR is also responsible for educating consumers about their rights under the NCA.
Purpose of the NCA
The NCA aims to create a fair non-discriminatory environment in which people borrow and lend money while at the same time guarding against people being given a loan when they cannot afford to pay it back. The NCA refers to people who borrow as consumers and says that they should be assisted and protected in the following ways. They should be:
- provided with information in a language they understand so that they may make informed decisions about borrowing money,
- protected from getting into too much debt,
- assured that credit providers follow the law when providing services to them,
- assured that their personal information will remain private (confidential), and given help with the management of their debt.
- promoting the development of a credit market that is accessible to all South Africans.
- ensuring consistent treatment of different credit products and different credit providers.
- promoting responsibility in the credit market by:
- encouraging responsible borrowing, avoiding over-indebtedness, and
- discouraging reckless credit granting by credit providers and contractual default by consumers.
- promoting equity in the credit market by balancing the respective rights and responsibilities of credit providers and consumers;
- addressing and correcting imbalances in negotiating power between consumers and credit providers by-
- providing consumers with education about credit and consumer rights.
- providing consumers with adequate information of standardised information in order to make informed choices, and
- providing consumers with protection from deception, and from unfair or fraudulent conduct by credit providers and credit bureaus.
- improving consumer credit information and reporting and regulation of credit bureaux.
- addressing and preventing over-indebtedness of consumers, and providing mechanisms for resolving over-indebtedness.
- providing for an accessible system for resolving disputes arising from credit agreements, and
- providing for a system of debt restructuring, enforcement and judgment, which places priority on the eventual satisfaction of all responsible consumer obligations under credit agreements.