Consumers urged to borrow wisely
LOSE DEBT Before taking on debt, Credit Ombud Manie van Schalkwyk urges consumers to make sure they understand the true costs of borrowing and payment conditions.
“You can end up paying many more times what you borrowed in interest alone,” says Van Schalkwyk. “Interest rates differ for long-term debt such as home loans and short term debt such as credit and store cards.” While your home loan may cost between 8%12% in interest on outstanding amounts, credit cards will cost you up to 22% interest a year. When it comes to taking short-term loans, credit providers are allowed to charge you up to 60% interest. “Borrowing to fund your children’s education or a home loan can be a good thing, but taking on debt to pay off other debt or fund luxuries can condemn you to a lifetime of always being in the red.”
Van Schalkwyk also warns that consumers should investigate debt consolidation offers from banks thoroughly. “It may be easier to manage your repayments, but make sure you are not paying a very high interest rate on both your long- and short-term debt.”
Under the National Credit Act, it’s your right as a consumer to be given a preagreement statement and quotation when seeking credit. These will outline the terms and conditions of the proposed agreement and all the costs involved. “You must know what is expected of you prior to signing the credit agreement,” explains Van Schalkwyk.
Another key factor is ensuring that the credit provider has all the information for an affordability assessment. This ensures you do not borrow more than you can afford.