Before we discuss the small print in any credit agreement, we always tell our clients to take consider the following factors:
Borrow as little as possible
Borrow only as much as you need, and the smaller the amount you borrow, the lower your repayments will be. That little extra to “tide you over” could have a devastating effect on your budget over time as interest takes its toll.
While there are not a wide variety of financial institutions in South Africa, you do still have a choice of who to go to. Once you know how much you will need to borrow, apply at as many institutions as you can to find out which one will offer you the best value for money.
Take note of the terms and interest rates and always read through the small print before signing any loan agreement.
Keep a record of all the relevant documentation
Keep all your credit documentation together. Make a file for each credit arrangement and keep both the contract and receipts in this file. You can also store your documents digitally in the cloud so that you can access them when needed.
READ MORE: How to get clearance from debt review?
Small print in credit agreements – what to look out for
Insurance on your vehicle
In all vehicle finance agreements, there is a clause which states that you have to keep the vehicle insured while it is still being paid. And whilst most people know this, we still have a number of clients who are paying off a vehicle that was written off in an accident because they stopped paying the insurance. Keep the insurance on your vehicle up to date, it could save you a lot of money.
Balloon or residual payments on a vehicle purchase
Let’s explain what a balloon payment is. It’s when you finance the car for 6 or 7 years and when you have finished paying, then you still owe the balloon payment, and this can be anything from R30k to one I saw recently of just under R130k.
When you get to the end of the time to pay the vehicle, the creditors want the balloon payment and very often if things are going well, they will refinance the balloon payment which makes you pay for longer to get the car finance finished.
But, what happens if during the 6 or 7 years that you are paying the car, you have an argument with your dentist and you don’t pay and he lists you on the credit bureau? Or worse, someone takes a judgment against you and now you can’t get finance, and you need to pay the balloon or sell the car?
Always ask if the vehicle finance has a balloon payment before you sign anything, and avoid a balloon payment if you can.
Change of address
We see this quite often, you move house and you forget to tell the bank, but the agreement says that you need to notify the bank in writing if you change your address. Many people will say that “I get my statements on email, so why do I have to worry?”
Well, if you get sick and you miss 3 payments, they will send out a summons, and where will they send the summons to?
The summon will get sent to the address on the credit agreement after they have checked if it was changed in writing. If you have moved and you didn’t change your address in writing and the summons is delivered to your old address, the people there throw it away and next thing you know, you have a judgement against you and you didn’t even know that there was any legal action against you.
So – save yourself the pain and if you change address, let the bank know in writing for each one of your credit agreements.
Catch Russell on East Rand Stereo, every Saturday morning at 08:15.