Be wise about borrowing!

Tuesday, January 22, 2019

With many still looking forward to 2019’s first pay cheque, the National Credit regulator (NCR) has urged consumers to borrow wisely.

“The festive season is over and reality has dawned that we are in a new year, which is meant to at least bring all things new. Unfortunately, if consumers did not spend wisely during last year, this will mean that they will have to start the year on a tough note, with taking out credit being the only option for some,” said the NCR’s acting Manager: Education & Communication, Didi Sebothoma.

The NCR, which is an agency of the Department of Trade and Industry (dti), said it has seen consumers battling financially last year as the VAT and petrol increases made things expensive for consumers.

Statistics from the National Credit Regulator show that consumer credit health has slightly improved from 38.9% to 37.4%. The number signifies consumers/accounts that are three or more months in arrears.

On Tuesday, the regulator urged consumers who need to borrow money to get by to only borrow from registered credit providers.

“They should never leave their bank cards, SASSA [South Africa Social Security Agency] cards, PINs and identity documents with credit providers. It is a criminal offence for a credit provider to take and retain consumers’ instruments. Consumers should also refuse to pay any upfront payments before they are granted a loan.

“They should report credit providers who charge them such fees to the National Credit Regulator,” said Sebothoma.

The NCR regulates interest and fees that credit providers should charge consumers when they take out credit. There are different interest rates for different credit types and most of these are calculated using the repurchase rate (repo rate).

The repo rate remains unchanged at 6.75% and for mortgage agreements, the maximum interest rate credit providers can charge a consumer is 18.75% per annum.

Credit facilities, which include credit cards, overdrafts and petrol cards, are 20.75% per annum; unsecured credit transactions, which consist mainly of personal loans, are 27.75% per annum, and developmental credit agreements are 33.75% per annum.

Credit providers are also allowed to charge consumers an initiation fee. This is a fee charged to consumers for entering into credit agreements with credit providers. In addition, it stressed that an initiation fee may never exceed 15% of the principal debt.

A service fee can also be charged by the credit provider for servicing the credit agreement and it must not exceed R60, excluding VAT.

Sebothoma advised consumers to get a pre-agreement statement and quotation when seeking credit, as these will outline the cost of credit for the proposed agreement.

“Consumers should not rush into signing anything at this point until they are clear and certain.”

The regulator also advised consumers to aim for paying off their debt and building up savings over the longer term.

The NCR, which was established under the National Credit Act, is responsible for the regulation of the South African credit industry. –