How to Prevent Reckless Lending

Gone are the days when a consumer could “thumb suck” an amount as their monthly living expenses when filling out a credit application, in the hope that it would be approved. Thanks to the National Credit Act (NCA), credit providers have to do affordability assessments on stipulated minimum monthly living expenses amounts, linked to the applicant’s monthly income. Here are some suggestions on how to prevent reckless lending.

Nearly half of the consumers with credit in South Africa are struggling to meet their debt obligations. This maybe the result of:

• The crippling recession that led to almost a million job cuts;
• Consumers having over extended themselves and living beyond their means; and
• Reckless lending by credit providers.

How does reckless lending apply?

According to the National Credit Act, a credit agreement is reckless if at the time the credit agreement was entered into the credit provider:

• Failed to conduct an affordability assessment regardless of the outcome that such assessment might have had at the time.
• Having conducted the assessment entered into the agreement despite information indicating that the consumer generally did not understand or appreciate his/her risks, costs or obligations under the proposed credit agreement, or that entering into the credit agreement would make the consumer over indebted.

The bank or credit provider needs to make sure that your debt repayments and minimum living costs are less than your net monthly income before they give a consumer a loan.

There are many ways to go about taking care of your finances, just make sure you know how to prevent reckless lending in case you become a victim.