As we learned in Understanding Credit it costs money to get money. Now we are going to break down what we mean by these costs, so that you know exactly what it is that you are paying for – on top of paying back the original amount you borrowed.
Here is a breakdown of charges you may see on documents sent to you by a credit provider:
- The amount for the goods/services that you have received credit for.
- The deposit to be paid and deducted from the amount.
- Number of instalments and the amount (including interest, fees, and credit life insurance) you have agreed to pay (monthly/weekly/other).
- Credit life insurance is insurance you can take out during a loan that makes sure that your debt is paid in the event of death, disability, or retrenchment.
- Initiation fee – once off fees paid to enter the credit agreement.
- Monthly service fee – providers can charge up to R60 (excluding VAT) a month for handling your credit product.
- Default administration charges – fees charged to let you know that you are behind on/have missed regular payments.
- The interest rate – interest is the amount you are charged for being able to borrow the money from the credit provider and is charged as a percentage of the principal amount (the amount borrowed).
- Total of all instalments including interest, fees, and credit life insurance, and the total cost of credit.
These may seem like many things and difficult to keep track of, but the National Credit Act protects you, the consumer, by regulating the maximum cost that a credit provider may charge for the above categories.
It is very important to understand these fees and request a pre-agreement quote that will show all the charges the credit provider expects you to pay. Once you have this information, you can see if you can afford to take out the loan you are applying for.
Using Compuscan’s Free My Credit Check facility, you have access to your credit score and profile to confidently be able to make the right lending decision for your pocket. You’ll also be able to see your total amount of credit on your name as well as your payment history and current instalments.