You know spring is upon us when queues at your local gym become longer as people get into the swing of things in pursuit of great bodies which will fit into the latest spring trends. Not only will the gyms be milling, but clothing stores have been booming with big winter sales on the one hand and new account applications from customers desperately wanting to buy the bright new spring colours ushering in the warm weather.
Conducting your own real and truthful affordability assessment, and not just relying on the one to be conducted by credit and service providers, is a valuable practice that most consumers should adopt.Credit Ombud, Manie van Schalkwyk, says with this year’s double increase in interest rates, an increase in inflation and several fuel hikes, as well as the ripple effect of escalating food prices, many consumers’ pockets are stretched to the limit. He says the reality is that consumers’ needs and desires will not diminish because of this. He says many will not be deterred from satisfying their urge to spend and they will simply incur more debt and still sign up for those gym or cell phone contracts.
He says this behaviour may lead to problems for many consumers. He warns that affordability will increasingly become an issue for most consumers if they have no regard for our financial state as a country or the imminent law changes relating to the manner in which affordability assessments are conducted.
The National Credit Amendment Act has placed a spotlight on affordability assessments with proposed guidelines to be implemented to further strengthen the protection afforded to both consumers and credit providers alike when it comes to decision-making in extending credit.
“The proposed guidelines, which seek to standardise how affordability assessments are conducted, were published for public comment and we await the final document and implementation date.”
Van Schalkwyk says the law has been created to protect consumers, but it is often seen as an obstacle. He says consumers need to appreciate that affordability assessments are not there to restrict or deny them access to credit for no good reason, but they must be applied properly in order to be effective.
Many consumers can relate to downplaying or even at times being outright dishonest about their living and other expenses when filling out affordability assessments in order to apply for credit. Sometimes, he says consumers claim to be encouraged by desperate sales assistants to downplay their monthly expenditure in order for them to qualify for the credit that they want because in turn, the sales assistant earns that much needed commission from the sale.
Van Schalkwyk says they always tell consumers that no one is in a better position to know if they can afford more credit than they themselves. He says they know their true monthly expenditure and how far they can stretch their budgets. The best advice is for consumers to assess themselves before even going to a store to apply for credit or take on new service agreements which involve fixed monthly payments such as gym or cell phone contracts. If your budget is already stretched, resist the temptation to enter into an agreement which carries with it a monthly instalment with interest and costs, he says.
For some, the split second, emotionally charged decision to enter into such contracts in order to ‘look good for summer’ can result in them not having enough transport money to get to work, he says. This can affect their ability to pay their debt and land them in trouble, he says.
They will soon also find out that there is no quick fix solution such as cancelling the contract. Most fixed term contracts would require them to pay a reasonable cancellation fee in order to terminate a contract prematurely, and when it comes to credit agreements, consumers have to pay the full outstanding balances on the account in order to terminate the contract.
Van Schalkwyk says conducting your own real and truthful affordability assessment, and not just relying on the one to be conducted by credit and service providers, is a valuable practice that most consumers should adopt.
He says if the credit provider decides that you qualify for more credit, it does not mean that in actual fact, you can afford it. It is better to assess your own finances critically. In this way, you can save yourself from financial or legal trouble in the future. “You should also remember to always leave a bit of ‘fat’ in your budget for increases in interest rates and other unforeseen expenses which may place additional pressure on your finances.”
For more information, visit the Credit Ombud website.
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