January can be a difficult month, especially for those who did not budget and/or spend wisely over the festive season.
According to the National Credit Regulator (NCR), many people are paid earlier in December and they wait long until the next payday in January.
"This long wait leads to very empty pockets and many unpaid bills, as these consumers start the year on a tough note. Consequently, many are being forced into taking excessive credit as the only option to pay for necessities like rent or mortgage, food, school fees, stationery and so on," the regulator said.
The NCR's Education and Communications Manager, Poppy Kweyama, said in addition to the high cost of living, consumers might need to borrow excessively at this time of the year because of poor budgeting and last year's reckless spending.
Citing the NCR's statistics for the quarter ended September 2023, Kweyama said there has been an increase quarter-on-quarter of impaired accounts.
To avoid an impaired credit record, consumers are advised to borrow wisely and responsibly and restrict credit to only what is necessary.
She added that during this time of the year, some consumers are desperate for financial assistance and may take out loans recklessly, even from unscrupulous credit providers.
The NCR has implored consumers who find themselves in this situation to be credit-smart and avoid resorting to unregistered credit providers.
She advised consumers to borrow only from registered credit providers and only as much as they need and only when they need to.
According to the expert, it is also crucial to plan how to repay the loans, and most importantly determine whether they can afford the repayments.
The NCR also encourages consumers to understand their credit agreements and the terms and conditions (Ts and Cs) before signing.
"Don't sign if you don't understand the Ts and Cs. Always ask for clarity and never pay an upfront fee.
"Never leave your ID or bank card with a credit provider in exchange for a loan. Not only is this practice illegal, but remember, to register and exercise your vote in the 2024 elections, you need to have your ID," Kweyama cautioned.
Credit is expensive, said the NCR, and it advised people to familiarise themselves with the fees associated with the credit.
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According to the National Credit Act (NCA), consumers can only be charged the following fees when taking up credit:
· Initiation fees - This is a fee that a credit provider charges a consumer for entering into a credit agreement. The credit provider must give the consumer an option of paying this fee separately and once off. In doing so, no interest may be charged on the fee. Initiation fees are regulated by the NCA. Standard initiation fees for credit facilities, short term credit transactions and unsecured credit transactions, per the NCA, is R165 per credit agreement plus 10% of the amount over R1 000 but the maximum initiation fee should not exceed R1 050.
· Interest rate - Interest is the amount that a credit provider charges a consumer on the outstanding balance of a credit agreement and is regulated by the NCA.
· Service fees - The fee that a credit provider charges for servicing and administering or maintaining the credit agreement. The credit provider can charge this fee monthly. Service fees can also be charged per transaction. The maximum monthly service fee under Section 105 of the NCA is R60.
· Credit Life Insurance - This is insurance which can be required by the credit provider when a consumer applies for credit. The insurance covers the debt due to the credit provider in certain cases such as retrenchment, disability or even death of the consumer. The insurance cover taken may not exceed the outstanding obligation to the credit provider.
· Other costs will depend on what you are purchasing as the consumer such as delivery costs.
