Accessing loans
THE CONSUMER Affairs Commission is aware that consumers will not always be able to make cash purchases at every transaction and has therefore provided the following points for consideration as a guide to evaluating loans and credit facilities:
CONSIDER THE PURPOSE
The purpose of the loan, whether for pleasure, leisure, investment or necessity, will guide your choice of institution and impact your decision regarding the duration of the loan and the terms that you are willing to accept.
LIFE OF THE LOAN/ REPAYMENT TIME
The time from when you receive the loan to when you make the final payment should be given serious consideration. A longer loan will more often than not translate into lower monthly instalments but will require a steady income for the entire life of the loan.
INTEREST
This is what you pay (the cost) for borrowing. Shop for the lowest rate, and, where possible, go for a reducing-balance method of calculation instead of an add-on method. Despite seeming lower, add-on rates work out to be higher than reducing-balance rates.
NON-INTEREST-RELATED CHARGES
Charges related to processing, service, and administration, mandatory deposits, late charges, and other costs not directly affiliated with the loan must be calculated as they will impact the total cost of the loan.
FIXED/FLEXIBLE INTEREST RATES
Interest rates that are fixed – will not increase or change from the amount agreed upon – are more desirable as they facilitate long-term financial planning. However, flexible interest rates may result in savings if interest rates decrease (interest rates decrease, payments decrease), but the reverse is also true; if interest rates increase, so will your payments.
REPAYMENT TERMS & CONDITIONS/PENALTIES
Look carefully at the details and the fine print.
CREDIT HISTORY
Will I meet the standards set out by the institutions? Find out what is required and whether you match up.
PERSONAL FINANCES AND JOB SECURITY
Before you put yourself in debt, ensure that you will have a job or some other steady source of income. Look at your monthly expenditure to see if your repayment amount will fit into your existing budget. If it is much higher than you can afford, then you may have to opt for a longer payment period, borrow less, or not borrow at all.
INSURANCE
Is the loan insured, and what does the insurance cover? For example, your mortgage that has an allowance for insurance may only cover the structure of the house and not its contents.
TIME ALLOTTED FOR SHOPPING AROUND
The more time you allot to finding a loan, the more time you will have to arm yourself with knowledge and compare the offerings of a variety of loan providers. So give yourself adequate choices, and make the decision that is best, not necessarily quickest.
Remember, it is always better to save towards short-term goals, such as purchasing a television set or a sofa, than to take out a loan or enter into financing arrangements, like hirepurchase contracts. Use loans as a financing option for medium- to longterm goals that require substantial amounts of cash, like buying a car or a house.
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