Affordability must be considered before taking on any form of credit.

This warning comes from Leonie van Pletzen, CEO of the Credit Association of South Africa (Casa) as households face increasing financial pressure.

“Credit can be an important financial tool when used responsibly,” she notes. “However, every credit commitment should be affordable and aligned with a consumer’s financial circumstances.”

Before taking on any form of credit, she warns, consumers must ensure they can comfortably meet the repayments while still covering their essential monthly living expenses.

Van Pletzen adds that it’s often the accumulation of several smaller credit commitments – rather than one large loan – that places consumers under financial pressure.

“Multiple repayment obligations across different credit products can quickly build into a monthly repayment burden that exceeds what a household can realistically afford,” says van Pletzen.

Risks of non-payment

The result is missing repayments which have serious financial consequences for consumers.

These include:

– Interest
– Default charges
– Collection costs
– Legal expenses
– Poor credit record

This could make it more difficult – and more expensive – to access future credit and may limit opportunities to obtain vehicle finance, home finance, student finance, or more.

How to protect yourself

Casa encourages consumers to ask themselves the following questions before taking on credit:

1. Can I comfortably afford the repayments every month?
2. Have I considered all my existing financial commitments?
3. Is this purchase necessary, or can it wait?
4. Do I fully understand the costs, terms and consequences if I miss a payment?

“Consumers should never borrow based on what they hope they will earn next month, instead they should borrow based on what they can comfortably afford today,” she warns.

“Financial decisions made with affordability in mind are the foundation of long-term financial wellbeing.”

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