Festive season cash crunch? Tips to borrow wisely

Consumers finding themselves trapped in a desperate financial quandary after the festive season spending spree have been warned to borrow money wisely

“Regardless of the reason for borrowing‚ before consumers sign credit agreements‚ they need to understand the cost of credit and the terms and conditions of different credit agreements‚” said Nomsa Motshegare‚ CEO at the National Credit Regulator (NCR).

According to the National Credit Act (NCA)‚ before credit providers extend credit to consumers‚ they must conduct an affordability assessment to gauge the consumer’s understanding and appreciation of the risks and costs of the proposed credit. This includes the rights and obligations of a consumer under the credit agreement and a consumer’s existing financial means.

Consumers were cautioned to be “truthful and honest” when applying to borrow money and provide the correct information for their household expenses.

“By being truthful‚ consumers will be protected by the National Credit Act‚ but will lose the protection of the NCA if they give false information‚” the NCR warned in a statement.

Credit providers must give applicants a pre-agreement statement and quotation when seeking credit. These should outline the terms and conditions of the proposed agreement and all costs involved‚ including interest‚ service fees‚ initiation fees‚ credit insurance‚ if there is any‚ the deposit required if there is‚ the number of instalments‚ date of first instalment and date of last instalment.

“As we start the year‚ unfortunately the festive season left some consumers in a desperate situation when it comes to finances. There are many reasons why consumers need to borrow money at this time of the year‚” said Motshegare.

Tips for borrowing wisely:

• Borrow as little money as possible – Borrowing to fund your children’s education or a home loan can be a good thing‚ but borrowing for consumables such as groceries‚ to pay off other debt or to fund luxuries such as holidays or designer clothing can condemn you to a lifetime of debt.

• Signing – Never sign a blank credit agreement as you will not have control over other information that can be added after you sign.

• Card retention – Never leave your identity document‚ bank card‚ SASSA card or PIN with the credit provider.

• Cooling off period – In terms of the NCA‚ a cooling off period only relates to credit agreements signed at the premises other than that of the credit provider. The cooling off period is valid for five business days. Often‚ credit agreements are signed at the credit provider’s premises. So‚ don’t sign until you are sure.

• Credit insurance – If there is‚ familiarise yourself with the terms of the insurance to avoid surprises when you most need the insurance. It is advisable to take out credit insurance.

• Create a monthly budget and stick to it – Work out how much income your family earns and what your total expenses are each month. Will you be able to pay for your new debt once you’ve covered all your expenses? You should also plan for unexpected costs‚ such as if one of your family members is retrenched.

• Start saving consistently – Put aside at least 15% of your income every month in a safe investment. Save for your retirement as well.

• Pay your debts on time – Paying late or not paying the full instalment will adversely affect your credit rating and possibly your ability to take out credit in the future. If you think you cannot meet your monthly instalments‚ contact your credit provider immediately and try to re-arrange payments. Do not wait until you skip payments.

• Prioritise your home loan – You don’t want to lose your home.

• Check your credit report regularly – This way you’ll be able to identify any errors and correct them. Under the NCA‚ a credit bureau must provide you with one free copy of your credit report each year from each of the registered credit bureaus. Additional copies come at a cost.

- Source: NCR