Can Borrowers Afford a Loan, Is it Up to The Lenders to Decide?
July 1, 2018
South Africans are so deep in debt that many are looking at their television sets, their microwaves and their cars for pawning. The NCR Act must protect consumers from irresponsible credit lenders. But some lenders could care less that as a consumer you’re in arrears on your repayments by 3 months. So can borrowers afford a loan or not?
- Yes, credit evaluation and approval is a vitally important process before becoming eligible for a loan.
- When the borrower is a business, evaluation is about analyzing the borrower’s balance sheet, cash flow statements and current market conditions.
- Lenders need to warn borrowers that big-cost items cost a lot more when bought on credit.
- Yes, because if you have a poor credit record, these credit providers demand higher interest rates to cover their risk
- Lenders need to advise borrowers to first resolve problems with debt and credit records before applying for a new loan.
- Creditors need to warn borrowers that in times of financial adversity, they stick closer to the borrower than a friend.
Questions Need to be Asked – Can Borrowers Afford a Loan
There are many South Africans who have been extended credit when they aren’t even formally employed. Credit providers need to be taking responsibility for individuals and asking themselves if the people applying for credit can actually afford it.
The idea isn’t to no longer be lending. But to eradicate reckless lending to people who obviously can’t afford a loan. One of the main purposes of the National Credit Act is to prevent this kind of reckless lending.
There are regulations under the National Credit Amendment Act whereby certain criteria are in place for credit providers to use when assessing whether certain people can afford the credit they’re applying for.
- Credit providers will verify your income by looking at your most recent salary slips and bank statements.
- They also make use of the ‘minimum expense norms’ table. To calculate what your current financial obligations are against your gross monthly income. The credit provider is supposed to take into account all monthly debt repayments and to actually restrict credit to those consumers who are in fact battling to service the debt they already have.
- More recent regulations are also trying to make it mandatory for credit providers to submit credit information to the credit bureaus. This, however, can only work if ALL lenders submit details to credit bureaus. The NCR will work with the credit industry to say how this information gets to the bureaus.
- Experts in banking law say that credit providers need to also be looking at the way they advertise credit and to do it in such a way to that consumers understand what their obligations are before they enter into any credit agreements.
Getting over the Effects of Over-Spending – Can Borrowers Afford a Loan
Reckless lending of creditors to borrowers isn’t the only thing resulting in over-indebtedness among South Africans. There is also the overcharging of interest as well as ‘unknown’ fees added which are contributing to this over-indebtedness. Look at your statements and make sure that you understand what each additional charge is. Remember credits can charge interest on late payments.
If you’ve taken on too much credit and you’re way over budget, consult a reputable firm of debt-help- or even insolvency practitioners and find new ways to tackle your debt.
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All info was correct at time of publishing