Navigating the complex financial landscape can be daunting, especially when under debt review. In South Africa, being under debt review is beneficial for many, as it offers a structured way to handle overwhelming debt. However, a common query that arises among clients in this process is about their eligibility for loans.
Unpredictable life events like medical emergencies or urgent home repairs may suddenly necessitate extra funds. Others might find themselves financially stretched due to an inadequate savings plan during the debt review process.
So, can you get a loan while you are a debt review client?
Debt Review: A Quick Refresher
Debt review, also known as debt counselling, is a process introduced by the National Credit Act (NCA) to help South Africans who are over-indebted. Once under debt review, your debt counsellor negotiates with creditors to extend loan terms and reduce interest rates, making repayments more manageable.
During this period, debt review clients are generally prohibited from taking on more debt.
Is it Legal for Debt Review Clients to Get Loans?
The Short Answer: No, it is not legal. This prohibition is designed to help the individual focus on repaying existing debts without accumulating more. The National Credit Act (NCA) recognizes that taking on additional credit during this period would further exacerbate the consumer’s financial situation. Thus, the Act prohibits consumers under debt review from incurring further credit or loans.
In rare cases, if a debt review client has a valid and urgent reason to obtain credit (like a medical emergency), the client might approach a court of law for permission. However, such exceptions are rare and entail a comprehensive legal process.
Why is it Challenging to Obtain a Loan Under Debt Review?
The overarching aim of debt review is to create a structured payment plan to clear debts over time. Taking on additional loans would undermine this goal, potentially lengthening the time it takes to achieve a debt-free status.
The NCA explicitly prohibits consumers under debt review from taking on more credit. Lenders, including banks, adhere strictly to this regulation.
Protecting the Consumer
The purpose of debt review is to assist the over-indebted individual to become debt-free. Taking on additional loans would counteract this objective.
Credit Profile Impact
Being under debt review affects your credit profile. Credit providers will see this status when they conduct a credit check, which will influence their decision.
Alternatives to New Credit
When you’re under debt review, taking out new loans isn’t just discouraged – it’s prohibited. However, there are alternative strategies you can consider to meet your financial needs without accruing additional debt.
Engage with Your Debt Counsellor
If facing financial stress or unexpected expenses, it’s imperative to discuss this with your debt counsellor. They can provide guidance and might negotiate further with creditors on your behalf. Debt Rescue can also provide services such as insurances for debt review clients to ensure you are covered financially.
Build Emergency Funds
Before even entering the debt review process or shortly after beginning it, consider building a small emergency fund to cover unforeseen expenses. This buffer can help you manage unexpected costs without needing to borrow more. Building a savings plan alongside your budget to cover emergencies, luxuries and holidays throughout the year will keep you focused on getting out of debt without adding additional stress.
Freelance or Part-Time Work
If possible, taking on extra work can help you earn the money you need. Freelance gigs or part-time jobs, even if temporary, can provide a financial boost without incurring debt.
Post Debt Review
Once you’ve successfully completed the debt review process and received a clearance certificate, your credit profile will start to improve. At this stage, you’ll be in a better position to apply for loans or credit, but always proceed with caution and financial prudence.
Loans for debt review clients in South Africa are a nuanced topic. While the immediate limitations can feel restrictive, remember that the overall objective of debt review is to create a pathway to financial stability. Committing to the process and seeking professional guidance when needed will pave the way for a brighter financial future.