The National Credit Act

Lenders are negligent if they don't teach the consumer about the laws and procedures connected to lending. Although the lenders knew that the consumers have very little knowledge about the laws and consequences, they still approved many loans to be issued. Little did the consumers know that they incurred a lot of risk by entering into agreements that can lead to over-indebtedness. Over-indebtedness comes about when the consumer is no longer able to pay for debt on time, therefore going into default and losing their assets to forfeiture.

Most people in South Africa use credit to get by and pay for practically everything they need. But because of the lack of knowledge regarding loans and mortgages, most of the lenders end up getting trapped in a deal that makes them pay big interest rates while recklessly lending money to consumers who can't pay. This results in interest rates going up instead of down. The NCA addressed the cause of the problem which is reckless lending and also helped those already in debt.

There are now new rules to lending and borrowing money. Lenders are now obliged to educate consumers about the laws of lending. They are also required to point out and explain the fine print on the agreement to consumers. Borrowers are told how much they need to pay in interest rates and informed of other charges involved in the loan. Aside from that, the costs, fees, risks and financial obligations are thoroughly explained before the borrowers can sign the contract. Consumers are now better informed about what they are about to get into.

Secondly, creditors are now forced to reject applications if the consumer cannot meet requirements. That includes the ability to repay the loan. Credit checks are now standard before they can approve any loans. There will be less loans approved but also fewer cases of over-indebtedness. If you are declined for a loan, there are still other ways to get the financing you need. Ask the lender for other options to get a loan.

On a last note, credit limits are not automatically increased like before. There was a time when your credit limit would be increased without your knowledge or consent. This one of the reasons why spending and debt used to shoot up.

It is also the borrowers responsibility to educate himself about getting a loan, borrowing money and the consequences of not paying on time. Although the lenders also play a big part in educating the public, bottom line is you, the individual will suffer if you blindly go into an agreement you don't fully understand.