All credit taken up must be repaid, regardless of whether you are experiencing financial difficulties. So, when you borrow money you need to be aware that taking on debt is a risk - if you cannot repay the loan, there are consequences.
Possible outcomes of defaulting on payments:
- You could fall into a cycle of debt – using credit from other providers to pay off your current debt.
- You could have adverse information on your credit report and be unable to access further credit.
- Legal action may be taken against you.
- You could lose your home if you own fixed property or be evicted from a rented home due to not paying rent.
- You could lose your personal property, such as your vehicle and furniture.
- You could be declared bankrupt and may have to go through a period of rehabilitation before being able to apply for credit. The terms “sequestration”, “bankruptcy” “insolvency” and “liquidation”, all describe a case where a person or a business is in such a bad financial state that creditors cannot be paid.
Even with careful planning, you may have problems making repayments at some stage during the loan period. For example, an unplanned event like retrenchment or a disabling injury can turn this risk into reality.
It is important to act quickly if your debts seem to be getting out of control. You should contact your credit providers without delay – payment options are often available to help borrowers who find themselves in financial difficulties for various reasons.
Make sure your credit has credit life insurance – this will protect you against disability or death. Check if the insurance you have includes retrenchment cover in case you lose your job in the future.
An important element of using credit responsibly is knowing where you stand with your credit accounts. Compuscan’s http://www.mycreditcheck.co.za offers free full credit reports. On your report, you can find your account payment history, balance and instalments which can help you better manage your finances.