The coronavirus has had a huge impact on our economy. South Africans are taking the necessary steps to combat the financial strain. Banks have stepped up by offering payment holidays to their customers. Although payment holidays will offer immediate financial relief, it will cost you in the long run.
It is great that banks have taken measures to help South Africans who may be struggling financially. If consumers are struggling to afford their monthly repayments due to a salary cut, a payment holiday may appear to be an ideal solution in order to find some financial relief. However, payment holidays aren’t the knight in shining glory as they appear to be…
Payment holidays may seem to be ideal for customers who have short-term debt obligations.
But what about the consumers who have a long way to go before paying off their debt?
A break from your debt may send you further into debt.
How do payment holidays work?
Firstly, it’s important to note that payment holidays don’t apply to everyone. Due to strict insurance regulations, those who are self-employed or seen as a commission earner will not qualify. Furthermore, it’s only available to consumers who are not currently in arrears. Meaning, you have to be in “good standing order’ with your bank.
A payment holiday is simply a quick fix solution for short term financial problems.
Once your application has been accepted your account will be on ‘pause’ for 3 months. Which means you don’t have to pay your monthly repayment, for that time. Nor will your credit score be affected during this time.
However, banks will charge interest as normal. And that interest rate will keep compounding.
Account fees still apply, and interest rates will keep compounding.
This means your total debt amount will be more than the original total.
Banks are simply just extending the terms of the loan. Instead of paying 37 months, now you’ll be paying 40 months in total. And you’ll be charged interest for all of those 40 months.
While payment holidays may offer some relief to consumers, the effects may hurt you in the long run. By increasing the term of your loan, the cost of your loan increases as well. Which will result in paying interest on interest.
Shaun Matthew, an FNB customer, spoke with IOL about the payment holiday that was offered to him.
Matthews’s wife has been placed on unpaid leave for lockdown and will not have a job after the lockdown has been lifted.
“She might get something out from the UIF. However, it will be a drop in the ocean and when it will payout, no one knows,” Shaun Matthews said.
“We sent a request to FNB through their Covid-19 process, and instead of activating the credit protection plan, to cover the loss of income, they have now replied with an option for another loan, to cover the next three months’ payments, payable over an extended period with no service fees but charged at a prime interest rate.”
To Matthews, this feels like reckless lending as the bank is offering a new loan, even though he can’t afford it. And as a result of the economic conditions, a lot of South Africans will be without a job by the end of the lockdown.
Banks won’t be able to sustain these payment holiday offers. What will happen to the consumer who can’t afford to pay their loans after the 3-month payment holiday?
Another IOL reader who is in the financial sector said that FNB is essentially offering consumers more debt.
“It is by no means a payment holiday, but a debt trap,” he said.
What should you do?
There are options available that will help with your financial situation.
If you or your spouse are still receiving some type of income and you know you will struggle to meet your monthly debt repayment commitments and maintain living costs, Debt Rescue may be able to help.
Debt Rescue has been around for over 11 years. We are regulated by the National Credit Act and work closely with credit providers to help over-indebted consumers rebuild their financial situation.
Debt review has been a highly successful and affordable solution for thousands of South Africans suffering from over-indebtedness. The process ensures that all living expenses are covered and that the consumer can live without making any more debt.
What is debt review?
Debt review offers relief to consumers who can’t afford all their monthly expenses. The process is ideal for South Africans who have an income but are struggling to make ends meet.
If you’re falling deeper into debt and struggling to keep up with your monthly debt repayments, debt review may be your saving grace.
Debt review offers financial relief by consolidating all your debt and offering you lower monthly repayment fees.
Instead of paying every creditor individually, you’ll only have to make one reduced monthly instalment towards your debt counsellor.
Benefits of debt review
- Receive a personalized monthly budget
- Only make one single reduced monthly debt repayment
- No more harassment from creditors
- Assets are legally protected against creditors
If you can’t afford all your monthly debt repayments, contact Debt Rescue today. We’ll guide you through the debt review process and help you with your financial situation.
To find out more about the debt review process click here.
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