John Vaughan (Financial Advisor) @ Lucid Living
Although interest rates have come down over the past few years, an alarming number of consumers are still battling to pay off their debts. The National Credit Regulator (NCR) warns that of 19, 10 million credit-active consumers, 8, 83 million consumers had impaired records (“blacklisted”) as at the end of September 2011. These are consumers that are three or more payments or months in arrears on their debt repayments.
“Before consumers sign credit agreements, they need to understand the cost of credit and the terms and conditions of different credit agreements,” advises the NCR.
Consumers should take into account all debt, 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,” warns the NCR. “Most importantly, stick to and honour your credit agreement and repayments.”
Consumers must take responsibility for the amount of debt they take on. “After taking all your debt into account, including your home loan, car repayments, store and credit cards, make sure you can really afford to take on extra debt,” adds the NCR.
According to the National Credit Act, before credit providers extend credit to consumers, they are required to conduct an affordability assessment to assess:
- the consumer’s general understanding and appreciation of the risks and costs of the proposed credit agreement;
- the rights and obligations of a consumer under the credit agreement;
- debt repayment history as a consumer under credit agreements (i.e. your credit report); and
- the consumer’s existing financial means, prospects and obligations.
“Under the NCA, it is your right as a consumer to be given a pre-agreement statement and quotation when seeking credit”, says the NCR.
“These will outline the terms and conditions of the proposed credit agreement and all costs involved such as cost of credit, interest, service fees, initiation fees, credit insurance if there is any, deposit required, number of instalments, date of first instalment, date of last instalment, etc”.
“This means that you will know what is expected of you prior to signing the credit agreement,” explains the NCR. “You should be aware of the cost of credit and the terms and conditions of the credit agreement before signing the actual credit agreement so there shouldn’t be any surprises in future. If there is anything you don’t understand, seek assistance before you commit yourself.”
The NCR strongly advises consumers to investigate what interest rates will be charged, but also all other charges that will be added. For example, when taking out an unsecured credit agreement which consists mainly of personal loans, the credit provider can charge maximum interest of up to 32.1%.
“However, as a consumer you can negotiate the interest when you get the pre-agreement statement and quotation. You can use these to shop around for better deals and remember to only borrow from a reputable credit provider”, cautions the NCR.
“Never sign a blank credit agreement as you won’t have control over other information added after you sign”, advises the NCR.