Be smart when buying on credit
If you buy an item on credit , you will still be liable to pay for that item, even if it is damaged, lost or stolen before the term of the loan is up.
That big screen television, that smart lounge suite, those fancy wheels – we’ve all coveted an item that we can’t really afford.
If you’re going to borrow to pay for it, make sure you understand everything there is about credit and your rights under the Consumer Protection Act.
“With the festive season fast approaching, think about whether the thing that you want is really worth getting into debt for,” says CEO of the National Debt Mediation Association (NDMA), Magauta Mphahlele.
Advocate Neville Melville, Consumer Goods and Services Ombudsman adds that it is important for you to understand the differences in rights and responsibilities under the Consumer Protection and National Credit Acts so that you are not left paying a big loan if the goods you buy turn out to be defective.
He recommends instead that if consumers are unable to resolve matters with the suppliers involved, they should escalate them to CGSO, which is able to deal with issues such as the goods not being delivered or the wrong product being delivered, defects in products and problems associated with repairs, but not the actual credit transaction itself.
Here’s how to buy on credit wisely:
Type and Length of loan repayment
The type of loan you take out will determine how much interest you will pay. An unsecured personal of R40 000 with an instalment of R1700 at an
interest of 30.5 per cent to be paid over 48 months can end up costing you just over R82 000. The NDMA advises consumers to compare types of loans, interest and other fees to be charged and not only look at the monthly instalment. Avoid borrowing from anyone who asks for your bank card, ID document and pension card as security as this is illegal.Do a needs assessment and draw up a budget
Consider very carefully whether you need that item or whether you can save for it and buy cash. Make sure you know what’s coming in and what’s going out of your account each month and draw up a budget. As boring as this sounds, this is one of the best ways to see if you can afford that expensive Christmas gift or how long it will take you to save for it. It’s also a good way to cut back on waste and unnecessary spending to see if you really need that loan after all. Make sure your budget includes saving for emergencies and future interest rate, electricity, transport and other increases.
Don’t rely on overtime to to calculate your affordability
When you apply for a loan, be honest and realistic about how much you earn and can afford to repay over time – don’t be tempted to include other forms of income such as overtime if they are not consistent over time. Do you really want to be chained to your job? What if you are retrenched or productivity is low or reduced? Consider extra streams of income like bonuses and overtime pay as a way to save for special purchases or boost your debt repayments so that you can pay off your loans faster. Ask the NDMA for help in doing a proper affordability assessment.
Check your credit bureau reports
If you don’t make regular repayments on your loan, it could affect your credit bureau report. Lenders use this if you apply for another loan and companies check this when you seek employment or want to rent a property. Under the National Credit Act (NCA), a credit bureau must provide you with one free copy of your credit report each year. You can access additional copies for a small fee.
Keep up to date with repayments even when there is a dispute
Melville says a common problem occurs when customers buy goods on credit and these end up being defective in some way.
“Disgruntled consumers may show their dissatisfaction by not paying their accounts when disputes arise,” he continues.
“But this is the worst thing a consumer can do as the credit repayments still need to be made while the issues with the product are resolved otherwise interest will still be charged on the outstanding amount and you could be listed at a credit bureau or handed over for debt collection. Keep up to date with your repayments.”
Improve your record keeping
Melville also advises consumers to keep all packaging, especially boxes and till slips until the six month warranty period has passed, so if you do need to return a defective good, you can. Remember under the Consumer Protection Act (CPA), consumers are entitled not only to return any items they purchase which have material defects, but they are also entitled to choose the form of redress – return, refund or replacement within six months of purchasing the goods.
Cover yourself
If you buy an item on credit , you will still be liable to pay for that item, even if it is damaged, lost or stolen before the term of the loan is up. If it’s expensive, this means you will paying off something you don’t actually have. Shop around for the best quotes on insurance, especially for gadgets such as smart phones and tablets so you can replace it if necessary. It is also important to take out credit life insurance in case of retrenchment. Make sure you are not charged exorbitant amounts for this type of insurance. For any insurance taken make sure you understand the terms and conditions so that you avoid your claim being declined.
Get a Credit Health Coach
If you are struggling with paying your debts Mphahlele says conducting a thorough credit health assessment and devising a clear debt recovery plan is important. With one-on-one coaching and support over a period of time an individual can really start changing their behaviour and turning around their financial situation.
