The outbreak of the Covid-19 pandemic necessitated national lockdown measures in South Africa resulting in loss of income, job losses and decrease in consumers’ financial well-being. The pandemic and lockdown have greatly affected people, businesses and communities not only in South Africa but around the world. The pandemic is creating major economic and financial distress for consumers, with many jobs in the South African economy already being impacted or at risk due to drastic demand shifts,” said Lee Naik, chief executive officer of TransUnion Africa.
As a consequence, most people are subsequently struggling to make monthly repayments on their credit accounts which include personal and business loans.
Here are some tips for consumers to consider so that you do not default on your payments and keep a positive credit record during this pandemic.
Speak to your creditors
Most financial institutions are offering their customers the option of a payment holiday on car finance, insurance policies, personal, business and home loans. A payment holiday allows you to pause your repayments for up to 3 months and may vary from creditor to creditor. The consequence of such an arrangement will differ from one provider to another but usually allows that the loan term may be extended to accommodate the payment holiday period and interest and other charges might still be added onto the balance. However instead of defaulting on a payment, contact your financial provider sooner rather than later to request a payment holiday or negotiate for a discount if any may be offered. Important to note is that providers will require your account to be in good standing, meaning if you were already in arrears with your provider prior to the pandemic you may not qualify for the payment holiday.
What will be the impact of a payment holiday?
You need to thoroughly discuss and think through the terms and conditions of a payment holiday before making an arrangement with your creditors. The disadvantage of postponing your monthly installments is that you might end up paying more than your initial agreement due to incurred interests and other costs which might include additional monthly administration fees charged by your creditor. A payment holiday is not an option that you should take lightly but might be your only viable option during this time. Only consider this type of financial relief if you and your family have suffered a loss of income during the lockdown. It is also important to ask your financial services provider of the long-term consequences of this decision and ask them to confirm all offers/agreements in writing.
How can credit insurance assist me if I am unable to pay my debts?
Ask your creditor whether you have credit insurance linked to your loan or credit agreement. This policy is meant to protect you if you cannot service your debt due to disability, death, retrenchment or unemployment. It is an additional option sold to the borrower (you, the consumer) when you take the loan and it can prevent you from falling deeper into debt should you find yourself in a situation where you are unable to service your debt. However, if you, the borrower did not choose to purchase credit insurance cover when you took out the loan, this option may not be available to you.
Will a payment holiday affect my credit score?
Since you will be delaying your repayments for up to a certain period, the obvious question to ask is whether this will affect your credit score. As many people are going through a tough time during this pandemic, lenders/credit providers may be putting measures in place to ensure that your credit score is not negatively affected. It is your responsibility however, to ask your lender how the payment holiday will affect your credit score. Having a negative credit score may affect your chances of getting credit in the future and that is why it is important to ask this question. You can access a free credit report from any of the registered credit bureaus at least once per annum.
To get your credit report contact one of the bureaus below:
| Consumer Profile Bureau
Tel: 010 590 9505 Fax: 086 556 3299 | TransUnion
Tel: 086 188 6466 Fax:N/A |
| Experian South Africa
Tel: 086 110 5665 Fax: N/A | Compuscan Tel: 021 888 6000 Fax:021 413 2424 |
| Xpert Decision Systems (XDS)
Tel: 011 645 9100 Fax: 086 626 6442 | |
