Credit provider

Know your credit provider to avoid pitfalls

There are different types of credit providers and each has their own set of lending rules. Before approaching a lender, arm yourself with the relevant knowledge to avoid getting trapped in credit agreements that don’t suit your needs.

“There are different types of lenders and among these are formal and informal lenders,” says Dhashni Naidoo, consumer education program manager at FNB. “Formal lenders include banks and non-bank lenders that operate in accordance with regulations established in the national credit law. Informal lenders include loan sharks who generally operate outside laws designed to protect consumers from unfair lending practices. “

Here are the different types of lenders and how they work:

Formal lenders

Banks: These are official credit providers registered with the National Credit Regulator. They offer different types of credit such as personal loans, credit cards, bank card overdrafts, home loans, car financing, and student loans. The interest rates charged on credit contracts are regulated by the National Credit Regulator and the interest rates primarily depend on your credit profile.

“Borrowing from a formal credit provider such as a bank has several advantages. The formal contract that is signed protects both the customer and the bank as it stipulates the terms and conditions. Banks also provide a quote that highlights the monthly repayments and associated costs such as administrative fees and life insurance, depending on the type of credit you buy, ”says Corné Jordaan, Head of Optimization for business process at FNB Loans.

“When taking out a personal loan, for example, the customer will be able to choose a repayment period – the longer the period, the lower the monthly payment. This allows the client to choose the option that best suits their financial situation. A personalized interest rate will also be offered, depending on the customer’s credit profile and affordability. These practices are in place to provide customers with adequate information to make an informed decision. “

Non-bank credit providers: these lenders offer long and / or short term credit and can include large organizations, smaller businesses, and even retail stores such as department stores, furniture and cell phone stores . What is important is that, like banks, they are also regulated by the National Credit Regulator, they also do checks before granting credit.

Informal lenders

Lenders / mashonisas: operate as informal financial institutions and are not registered with the National Credit Regulatory Authority. They offer credit in the form of cash and generally charge unreasonably high interest rates. Access to funds is generally easy with immediate access and little paperwork. Lack of proper checks can result in more credit being granted than a customer can afford.

“When a lender such as a bank asks for your bank statement, payslip and household expenses, it’s to make sure that if you’re eligible, it’s an amount you can afford to repay. . The checks are carried out to manage the risk of the credit provider while protecting the borrower so that he can obtain the credit while being able to meet other expenses, ”Naidoo said.


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