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New credit agreement? What you need to know

Posted: 13 Jun 2016

3 mins to read

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When you enter into a new credit agreement you should know what you are letting yourself in for. We give some insight to the pre-agreement and quote that you sign when applying for a new loan.

What is a pre-agreement statement and quote?

A pre-agreement statement is a document that is set up by the credit provider, It contains the terms and conditions of the credit offer or loan you may decide to take. The quotation contains all the information regarding the credit agreement, including the:
  • cost of the credit
  • principal amount
  • repayment schedule
  • interest rate
  • other credit costs and the total cost of the credit agreement.
If you agree to the terms and conditions and sign the documents, this will become your credit agreement.

Understand the cost of credit

According to the National Credit Act, a credit provider has to disclose and explain the total cost of any credit to you (this relates to all credit, for example store cards, credit cards or overdraft facilities). The cost of credit includes any fees over and above the amount that you borrowed (for example, a R1 000 loan will cost you more than R1 000 because of interest and fees). So, make sure you understand exactly “how much” it is going to cost you to borrow! Know your credit rights 

Before you sign the pre-agreement

Once you’ve had a look at the pre-agreement statement, you need to decide if you will accept it or not. Remember that you are under no obligation to accept a pre-agreement offer, sign anything or pay a fee. Should you agree to the terms and conditions set out in the pre-agreement, you will receive a quote – this is valid for 5 business days. This gives you some time to consider whether or not you want to enter into the proposed credit agreement. If you are not interested in the offer, you can simply decline the offer. You need to hold the credit provider to task for every detail on the pre-agreement statement. Once you are happy with the pre-agreement and understand the cost implications, you may at any time before the 5 day expiry date accept the terms and conditions as disclosed in the pre-agreement statement and quotation.

Understanding the pre-agreement documents

Remember to ask yourself these important questions:
  • Does the statement show the total costs of the credit?
  • Are all these costs in line with the National Credit Act?
  • If your agreement includes a balloon or residual payment, do you understand what that means for your future? (You will be expected to pay a large amount at the end of the credit agreement).
  • Is a deposit required? Make sure that you have enough money available to pay this amount.
  • Is the credit provider registered with the National Credit Regulator?
  • Does the statement include the repayment amount (instalments), and can you afford to make this payment every month?
  • Does the loan allow delayed payment? (E.g. you only start paying back the debt after three months)? Make sure that you know what impact this will have on your total cost of credit. Remember: You will still be charged interest and fees for every month, including the months where no instalment is due.
  • Does the agreement show how long it will take to pay off the loan (repayment term) and will you be able to pay off the loan within this timeframe?
  • Do you understand what the credit agreement expects from you in terms of repaying the loan?
  • Did they offer any insurance products? Always find out if you can find cheaper insurance elsewhere.
Go on, be confident in your credit decisions!