Knowing Credit: Your Responsibilities [Part 3/3] Consequences of Defaulting

Welcome back! In our last lesson, we learned about various ...

Compuscan Knowing Credit: Your Responsibilities

Welcome back! In our last lesson, we learned about various ways in which you can make your credit installments. Your credit provider may require that you set up a debit order or a stop order. Or, you can choose to pay via EFT, cash deposit, or sometimes by cheque.


Definitions of the week: LEGAL CONTRACT

A legal contract is an agreement between two parties enforceable by law, and can have legal consequences. Your credit agreement is a legal contract, and sets out the following terms and conditions:

-The credit provider grants you a loan.
-You pay for the loan over some time (e.g. 1-10 years).
-The credit provider charges interest and fees for the service.
-The credit provider may take action against you if you default.


In today’s lesson, we will talk about the consequences of defaulting on your credit agreement. When a credit provider grants you credit, they are at risk of you not paying them back, and might lose money. There are always consequences if you cannot repay your credit.

Unfortunately, sometimes you might skip a payment, for example because of an unplanned event making you spend beyond your budget.

If you default on your installments, some of the following consequences may occur:

• You might fall into a Debt Cycle:

Debt Cycle by Compuscan

• Your credit record can be negatively affected, so you might be unable to take out more credit.
• If you have a bad credit history, you might find it difficult to find a job, as potential employers often do credit checks.
• The credit provider may take legal action against you.
• Your salary could be garnished via an Emoluments Attachments Order (an EAO, or garnishee order), which means the credit provider can deduct the installments directly from your salary, so your employer will know you are in default.
• Your house can be repossessed, or you could be evicted.
• The sheriff of the court may seize your possessions and sell them to cover your debt.
• You could become bankrupt.

As you can see, the potential consequences of defaulting on debt can be quite severe! If you default on your payments, or fail to pay altogether, a credit provider must notify you in writing, in terms of Section 129 of the National Credit Act. This is known as a Section 129 letter, and it gives you time to react to the notification of default.

You may remember from our first lesson {hyperlink to first lesson} in this series, that the way in which this letter is sent is outlined in the credit agreement. You may choose to receive a Section 129 letter by registered mail, or you may ask for it to be delivered by hand, to an adult at the address provided (for example, your home address).

Helpful Hint: It is important to take action if you find yourself defaulting on your credit payments. You should contact your credit provider as soon as possible. Most credit providers have repayment options to help you when you go through difficult times. However, all credit that you take up must be repaid, even during times of financial difficulties. To keep track of your payments, any arrears, or if you’ve defaulted, you can access your full credit report on www.mycreditcheck.co.za for a small fee. Remember, you are entitled to one free credit report every year.

We have come to the end of our series on your responsibilities regarding the credit agreement. In our next series, we will discuss how to manage your credit responsibly. Stay tuned for more information on knowing credit, coming soon!