Knowing Credit: Credit Applications [Part 6/6] Pre-agreement and quotation

Welcome back! In our last lesson, we looked at everything ...

Knowing Credit: Credit Applications

Welcome back! In our last lesson, we looked at everything you need to check before applying for credit, including your credit score at www.mycreditcheck.co.za.


Definitions of the week: PRE-AGREEMENT STATEMENT and QUOTATION

A pre-agreement statement is a document with the terms and conditions of your loan. It is valid for five business days.

The quotation is part of the pre-agreement, and it contains the cost of your loan. The quotation contains:

  • the costs of credit,
  • the original amount (principal debt),
  • the repayment schedule (for example, monthly repayment over three years),
  • the interest rate,
  • other credit costs (such as credit life insurance and an initiation fee), and
  • the total cost of the proposed credit agreement.

If you agree to the pre-agreement and statement, and you sign these documents, these become your credit agreement.


 

In today’s lesson, we will talk about the fees and charges on your pre-agreement statement, and what you would be charged for, should you sign the credit agreement.

Initiation fee

This is a once-off fee that you pay when you enter into a credit agreement. By law, the credit provider has to give you the option to pay this in advance, without interest.

Asset insurance or vehicle insurance

If you buy an asset on credit, for example a house or a car, you must take out insurance to cover the asset. Your credit will not be approved until you do so. You may take out your own insurance, or ask the credit provider to provide it.

Service fee

This is what a credit provider charges to administer and maintain the credit agreement. Service fees can be charges monthly, annually, or per transaction. The pre-agreement statement and quotation must show the total service fee amount per year, or for the loan duration.

Interest

Interest is a percentage of the amount of credit you take out, also known as the principal amount. The maximum interest a credit provider may charge you is regulated by the National Credit Act, and depends on the type of credit agreement.

Credit life insurance

You might have to take out credit life insurance for certain credit agreements. This insurance will settle your debt in case of death, disability or retrenchment. Make sure you are covered for the entire duration of a loan.

Default administration charges

These are only charged if you default on your monthly payments. If your account is in arrears, you will receive a notification of default. The costs of these fees must be listed in your agreement.

Collection costs

Collection costs are only charged if the credit provider needs to collect on outstanding or overdue debt. These costs must be listed in your agreement.

Helpful Hint: Make sure that the is registered with the National Credit Regulator. This should be shown on the pre-agreement and quotation. Also, make sure that the costs quoted to you are in line with the National Credit Act and the National Credit Regulations. You can check www.ncr.org.za for more information about the legal maximum fees a credit provider may charge.

This is the last post in the series Knowing Credit: Credit Applications. Our next series, Knowing Credit: Your Responsibilities, focuses on what your responsibilities are once you have accepted the credit agreement.