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Your credit agreement breakdown

Posted: 13 Jun 2016

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What is a credit agreement?

A credit agreement is an agreement between you and a credit provider, where the credit provider supplies goods, services or a loan to you, provided that you repay the debt at a later stage. If you fail to honour your repayment responsibilities, you will most probably be held liable for additional interest charges and other fees.

What information is displayed on the credit agreement?

Always make sure that you understand the information on your credit agreement. Your credit provider should explain and clearly state the following information:
  • Payments: When and how payments will be made, the number of payments, and the date of the first and last payments.
  • Statements: How often statements will be delivered and the method of delivery (for example by e-mail).
  • Default administration costs: When default (missed payment) administration costs will be charged and the amount(s).
  • Consumer’s right to cancel the agreement: Also including the conditions of such termination.
  • Early settlement: Your rights and obligations should you choose to settle the agreement early.
  • Credit provider’s right to terminate the agreement: Includes the conditions of such termination.
  • Addresses for receiving documents: This should include all personal details of all parties. It will state that you are responsible for notifying the credit provider of any change to your address or other personal particulars. This is also necessary for the delivery of a Section 129 letter.
  • Penalty interest: This involves interest on debt outstanding
  • Marketing options: There should be a statement where you can ask to be excluded from telemarketing campaigns and distribution lists.
  • Annual increases in credit limits: The credit agreement should also speak to automatic increases of credit limits for credit facilities.
  • The right to apply for debt counselling: Should you find yourself unable to make payments due to over-indebtedness.
  • The rights of the credit provider: This may include their right to recover goods and to enforce the agreement if you don’t honour your commitments.
  • Security: If you have taken out a secured loan, this would include the information on the asset that has been allocated to secure the credit.
  • Insurance: If you decided to take out insurance with the credit provider, this will include all info such as the monthly premium amount, a description of the circumstances under which the insurance will be paid to the credit provider, the nature of the insurance and the fee or commission that the credit provider may enforce.

The Section 129 Letter

If you have missed several payments, your credit provider will issue you with a Section 129 letter; this is basically a letter of demand, urging you to pay the debt as soon as possible. When you sign your credit agreement, you have to choose how you would like to receive it in the event of a default. It can be via registered mail or delivered to any adult person at the location you indicated (i.e. your home).

Pay on time to avoid a “default” listing

Once you have signed the credit agreement, it is extremely important that you make regular monthly payments on time. Remember, every time that you miss a payment, you will be reported to the credit bureaus. These missed payments will be listed against your name as default statuses on your credit report. The more often it happens, the bigger the negative impact on your credit profile. You can repay your debt via:
  • Cash: You know the debt has been paid and you receive a slip immediately as proof of payment
  • EFT: It is quick and convenient because you can make payments from anywhere, anytime
  • Debit Order: This is the best way to make sure you don’t miss any minimum payments every month.

Consequences of defaulting on your credit agreement

Here are a few potential consequences if you don’t manage your credit well and miss payments:
  • You could fall into a debt cycle that might be difficult to break
  • You could have a negative credit record which will keep you from accessing credit until your debt problems are solved
  • You may face legal action
  • You could lose your house or be evicted
  • You could lose your personal property
  • You could suffer from bankruptcy/sequestration
You should always ensure that you manage your credit as best as possible. Be proactive in your approach to financial challenges.

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