[Rek jou cheque] Don’t fall prey to loan sharks: Follow theses tips before getting deeper into debt
South Africans are struggling.
Many rely on credit to survive, and have exhausted all formal options for getting money or loans.
In desperation, they are now turning to predatory, unregistered lenders.
A recent article by Just Money explored this growing trend. The following vitally important information was shared.
Contracts with unregistered lenders are not legally binding
– Because predatory lenders aren’t registered financial services providers, they operate illegally. This means any contract you sign with them isn’t legally binding.
– However, many consumers in South Africa don’t know this – and lenders may threaten, intimidate, or even seize assets, although they have no legal right to do so.
– Some lenders may also withhold loan documents, making it challenging to prove unfair lending practices.
Misleading advertisements
– Predatory lenders often use misleading advertisements to lure unsuspecting borrowers. Phrases such as ‘act now’ create a sense of urgency, encouraging you to act without fully understanding the terms and conditions of the loan you are taking.
– They often promise loans to consumers who cannot get credit in the formal sector but at high interest rates or unfavourable lending terms. These unethical lenders also often promise low monthly payments without being clear about the total cost of the loan.
Unrealistic interest rates
– Stats have revealed that predatory lenders charge excessive interest rates ranging from 50% to 112%, often making it impossible for borrowers to pay off their loans.
– The National Credit Regulator (NCR) advises that the maximum interest rate on unsecured loans, such as personal loans, is currently 28.75%, so you should only accept a loan at a lower rate.
Upfront fees
– It’s illegal to charge upfront fees before granting a loan, and legitimate lenders will never do this.
– However, unregistered lenders often get away with this practice because consumers are unaware of their rights. If you’re charged upfront fees, report it to the NCR or the Financial Sector Conduct Authority (FSCA).
– Unregistered lenders charge upfront fees to make money even if they don’t provide a loan. They use the fees to offset the risk of lending to high-risk borrowers.
Pressure to take out additional loans
– If you’re heavily indebted, unethical lenders may try to sell you a new loan to consolidate your debt or lower your monthly payments.
– The promise of immediate relief may persuade you to take out a new loan without considering the long-term costs.
Demanding personal documents as collateral
– A predatory, unregistered lender may hold your documents ‘hostage’ until you pay and could even threaten to expose or sell your sensitive information. Such lenders may also use your personal documents to locate you if you default on loan repayments.
– These actions are illegal and unethical, and they’re among the tactics that predatory lenders may use to trap you in a debt cycle.
– Legitimate lenders are entitled to ask for some form of identification, but they are not entitled to take possession of your original documents.
Watch out for the following warning signs when dealing with a lender
– They’re not officially registered
– The most obvious difference between authorised and unauthorised lenders is that the former are registered with the NCR.
– Under section 40 of the National Credit Act, any person or entity that provides loans or extends credit with interest must register as a credit provider.
– Registered lenders must display their NCR registration certificates and window decals.
– If a lender’s certificate is not displayed, you can ask to see it. The certificate must contain a registration number that can be verified with the NCR.
– Be aware that predatory lenders may steal registered credit providers’ registration numbers, so check the NCR registrants list to verify the details.
The FSCA warns that the following behaviours by lenders should set the alarm bells ringing:
– They fail to put a legally binding contract in place.
– They offer questionable loan arrangements. For example, they may pressure you into taking out a short-term loan and then recommend another loan to pay off the first loan.
– They advertise interest rates that seem too good to be true, such as 5% a year, but demand an upfront payment before granting you the loan – which you may never receive.
– They ask you to hand over your identity document, bank card, or South African Social Security Agency (SASSA) card to secure a loan. This is illegal and should be reported to the police.
Improve your financial literacy to prevent yourself from falling victim to predatory lenders.
Do thorough research before taking out a loan, and carefully read the terms and conditions before signing a loan contract.
You can report irregularities using the NCR complaints process.
You can also call the NCR on 0860 627 627 or 011 554 2700.
dailyvoice@inl.co.za