When you desperately need some cash, will you do (almost) anything to get your hands on some easy money? Like, for instance, taking out a loan – without even glancing at the terms and conditions…?
If you answered yes, you are one of many who have the easy credit offered by payday loans. We all need to live, and it can be expensive, right?
However, easy credit could cost you more than you might think. You could watch your world fall apart with the repossession of your assets and your credit score severely impaired. It is therefore very important to think twice about taking on new debt. To grasp the full impact unaffordable debt could have, it is important to understand the regulations concerning credit agreements and transactions as set out by the National Credit Act (NCA).
These 3 steps are necessary before credit is approved by the credit provider.
An Affordability assessment
When you approach a credit provider for any kind of credit, the credit provider is legally required to conduct an affordability assessment.
The objective is to check whether you can afford the new credit based on your monthly take-home salary, living expenses and current debt. It is monumentally important, to be honest on the application about your current finances.
According to the National Credit regulator (NCR), it is considered reckless lending when a credit provider gives you credit without conducting an affordability assessment.
Checking your ITC
Besides the affordability assessment, the credit provider must consider your credit bureau (ITC) record as well. The credit provider is obliged by law to check your credit report at the time that you apply for the credit.
Understanding the terms and conditions
Additionally, the credit provider must make sure that you understand the contract and the terms of credit. You should be provided with an initial quotation, valid for five days, during which you should make sure of all the detailed costs, terms and conditions.
Don’t be afraid to ask questions. Here are some things to look out for:
What are your obligations? How much are the repayments? When are they due? Is there a discount if you settle early? What is the interest rate, and is it fixed? Is there a service or administration fee? What happens if you miss a payment?
Remember, never, ever sign anything unless you’ve read and appreciated the full implication of the contract! Once you’ve signed, it is a declaration that you understand and agree to the T’s & C’s as stipulated in the document.
In many cases, the credit provider will not grant you credit if you are over-indebted or if the new credit you are applying for could make you over-indebted. If they did, it would be considered reckless lending, by law.
So, what is reckless lending?
According to the National Credit Act (NCA), an agreement is reckless if “the credit provider fails to conduct the required evaluation, or having conducted it, enters into an agreement with a consumer despite the fact that the available information to the credit provider indicated that the consumer did not appreciate the nature of the obligations, or could not afford them.”
The onus rests on the credit provider to reasonably investigate and evaluate the prospective lender’s – that would be your – financial situation.
Yet, since you are ultimately responsible, you have to make sure you answer all questions truthfully, and that you are honest about your financial affairs so that a correct assessment can be made. You also have to consider whether you really can afford this new credit agreement, whether it is a loan, credit card or store account. You as the consumer need to prevent your debt from spiralling out of control.
Should you believe you are a victim of reckless lending, only a court or the National Consumer Tribunal (NCT) has the power to declare a credit agreement reckless.
A debt counsellor can assist you with a reckless lending assessment to advise whether the debt was indeed given to you recklessly.
If you find that you cannot afford your debt obligations each month, then it is best to look at debt counselling to help you reduce your monthly debt repayments into one lowered instalment, helping you to make more funds available for your month to month living expenses, rather than making new debt.
A debt counsellor can also determine whether you are over-indebted or not and can also do a reckless lending assessment for you once you are under debt review.
If you’d like to get your finances back on track, leave your contact information below and one of our consultants will contact you shortly to do a no-obligation free financial assessment for you.