There are various types of debt that a person living in South Africa can be in arrears for. Banks will investigate all these areas when considering whether or not you are viable for a loan.
- Personal Loans
- Credit Cards
- Vehicle Finance
- Furniture Accounts
- In-Store Accounts
A personal loan is used to pay for your personal expenses and those of your family. Personal loans can be obtained from banks, micro loan companies, cash loan sharks or from relatives and friends. Loans from cash loan sharks are normally very expensive and should be avoided. Personal loans are repaid in regular monthly installments over periods ranging from 3 to 60 months and normally attract a high interest rate.
Items bought on credit are outlined in a monthly statement that you receive from your bank. If your repayments on your credit card purchases are repaid on time you will not be charged extra. However, people often find themselves in debt or ITC credit blacklisted when they fail to meet these payments by the due date. Payments increase as you are charged an interest rate on budget payments.
A vehicle loan is used to buy a car. Repayments are made on a monthly basis over the term of the vehicle loan which normally does not exceed 60 months. The vehicle belongs to the bank until you have repaid the loan in full. The vehicle can be repossessed by the bank if you fail to meet your monthly payments. If a car is repossessed by the Bank they will sell it and if the selling price is less than the outstanding amount the overdraft will be collected from you.
This loan is very similar to that of vehicle finance. The furniture can be repossessed by the retailer if you do not meet your monthly payments. A furniture loan will not exceed a maximum of 48 months.
In-store accounts are used to buy clothing and miscellaneous items. Some retailers offer an interest-free period. You will receive a statement on a monthly basis to inform you of outstanding expenditure.
A homeloan is used to purchase a house. Normally the bank would register a bond on the property as security. Repayments are made over a long-term period – normally 20 years. This is normally your biggest debt over a long period. If you don’t pay, the bank will take back your house and sell it. If the house is sold for less than the full amount outstanding, they will collect the balance from you.
One of the more secure and inexpensive forms of debt, overdrafts are made available by banks only to their customers who have current or cheque accounts. An overdraft allows you to draw more money than you have in your account, up to the limit of the overdraft that the bank has set according to your history with them. This is a very good form of borrowing because you only pay interest on the daily balance outstanding. However to operate an overdraft you need to be disciplined not to spend the available balance on unnecessary items.