The festive season has come and gone. For some it’s back to school, while others need to register for university – and most of us it’s back to work.
Mr Nicky Lala-Mohan, The Credit Ombud says, “The unfortunate truth is that many consumers tend to be reckless/irresponsible with their spending during the festive season. Credit cards are maxed out, new debt is incurred and sometimes consumers fall behind with their monthly payment obligations. This adds more pressure to consumers, as many households these days rely on credit to cover their day to day expenses.”
Mohan says many people take out ‘pay-day’ loans; these are loans taken out for just a short period of time, while others go as far as borrowing from loan sharks. Cutting corners may seem quick and easy, but the consequences of getting a loan from unregistered loan providers may be disastrous. He explains the dangers of borrowing from unregistered lenders as follows below:
- They don’t come cheap – These organisations are usually not compliant at all with the National Credit Act and will therefore not stick to the rules and regulations designed to protect you when it comes to the charging of interest fees. They usually charge very high interest and you’ll end up paying ridiculous amounts of money on interest alone.
- Their collections processes may be questionable – There are rules and regulations set out in the National Credit Act for the collection of unpaid debt. When dealing with an unregistered lender with no fixed offices, it will be difficult for you to lodge a complaint against them when they use questionable methods such as threats or violence or even taking your bankcards and ID books/cards.
- Loan agreements and the terms thereof are not clearly explained – Due to the fact that these loans appear to be quick and simple, you usually enter into these agreements without a full understanding of what you’re getting yourself into. The terms and conditions are not laid out and, in particular, the consequences of failing to pay are not explained.
- Loans are granted without ensuring affordability – If a proper affordability assessment is not conducted, you’re at risk of taking on loans that you cannot afford to repay.
- You’re eventually placed in an even worse position – You’ll end up with more debt and worries as opposed to having your problems resolved. For example, you could be forced into a situation where you have to take out another loan in order to pay the previous loan. This behaviour leads to a debt trap where you need to continuously borrow more and more money in order to cover the payments of all the loans, as well as your day-to-day living expenses.
- No recourse to formal dispute resolution agencies – You can’t avail yourself of the protection provided by legislation and may not even be able to use the services of our Ombuds Offices, as these credit providers are not our members and are usually not willing to co-operate to provide any information or resolve your disputes.
If you are a little short on cash, rather talk to your bank or the service providers to negotiate a payment arrangement or additional funds.
Source: The Credit Ombud. Images: Pixabay