Why Loans May Soon be Cheaper
Having to get access to a loan is something that many people experience in their lifetime. Harsh economic conditions have pushed many people towards finding credit solutions in order to help them meet their short and long term financial needs. While many loan solutions are available, the cost of getting these loans has been a source of contention for a number of years. In South Africa, the introduction of the National Credit Act has ensured the protection of consumers from unscrupulous lenders.
The Minister of Trade and Industry, Dr Rob Davies has recently published a notice regarding limitation on fees and interest rates applicable for loans. The purpose of the notice is to change the maximum rates for various types of loans.
Some of the proposed changes include:
Maximum rates for unsecured credit
32.65% to 24.78%
This amounts to a proposed decrease of 7.9%
Mortgage agreements
17.65% to 17.75%
Credit facilities
22.65% to 19.78%
This amounts to a proposed decrease of 2.9%
Developmental credits 32.65% to 32.78%
What does this mean?
A cap on the interest rates that are charged could mean that lenders won’t be able to overcharge consumers on their loans. Although this won’t solve the debt problem in South Africa, it may have a tangible effect on the lending industry in general. Consumers will be protected from unfair charges for getting access to credit and will be able to get thorough information about credit agreements.
What are some of the reasons for over-indebtedness?
- Some lenders have weak affordability tests.
- The lack of honest disclosure by some loan applicants is a major factor.
- The abuse of credit insurance.
The proposed changes in maximum interest rates would affect the types of credit providers in different ways.
