With more and more people needing use of extra money nowadays, it's no surprise that there are more illegitimate lenders. It's important for borrowers to know their affordability & rights in terms of credit agreements.
In Nigeria, the National Credit Act protects consumers and credit providers. One way the Act performs this is by regulating credit agreements.
According to the Act, lenders cannot give loans to borrowers without affordability checks.
Lending money without conducting affordability checks is known as reckless lending. By law, a creditor must take steps to ensure that you can afford to pay for the loan back.
Why loans without affordability checks should be avoided:
If you are unable to afford to repay the borrowed funds, do not be applying. By granting a loan without assessing your affordability, a creditor runs the chance of making you over-indebted. Additionally they run the risk of the inability to recoup expenses associated with granting you the loan.
As a borrower, you've got to be asked questions regarding your earnings and your regular household expenses.
Of South Africa's 22.5 million credit-active consumers, just under 1 / 2 of them have impaired credit reports. Credit-providers in South Africa are now necessary for law, to correctly test affordability, like a measure to avoid adding to these figures.
Credit providers have to avoid providing loans without affordability checks by asking when the applicant can definitely afford credit. Lenders must do robust affordability tests.
What creditors should do before granting use of credit:
- Check your latest 3 bank statements
- Calculate your overall obligations according to your gross monthly income
You should also remember that being refused credit can be a sign that you might want to get debt advice. Before applying for credit, you should assess your affordability.
