To obtain a loan in South Africa can be difficult and complicated, even at the best of times! If you have bad credit or are blacklisted and in the market for a bad credit loan chances are 1 of 2 two things are going to happen:
- You will be scammed into a ‘Loan Finding’ service with a monthly fee.
- You will take out a loan at an exorbitant interest rate.
The good news for South Africans is there is hope, think of your bad credit as a blessing to rid yourself of debt once and for all and free up your current income!
So what can you do about your bad credit and is there any light at the end of the tunnel?
First Things First, Your Credit Score
When talking about loans and credit, your credit score or credit rating is the start to success or an immediate dark ending.
Your credit score is calculated using the information that is contained in your credit report. This information includes account information, payment history, any adverse information, public records and any requests that credit providers have made to view your credit report.
Essentially, your credit score predicts how likely you are to honour your future credit agreements. For this reason, credit providers consider credit scores as paramount when they need to decide if they will grant credit to a consumer. To get credit in such a case will be severely hampered by a poor credit score! It is advisable to go read more about the importance of having a good credit score and also to find out what yours is.
Blacklisted, Do You Know the Full Story?
Being blacklisted sounds harsh, and to many more so than it should. When you’re blacklisted, you are in the predicament of wanting to apply for credit or a loan, only to find out there is dark cloud over you name.
- Being blacklisted can mean different things. One possibility is simply that you are in “arrears”. You have failed to make scheduled payments and have fallen behind on the amounts you owe service providers. It shows on your credit record but no legal action has been taken against you.
- One step further of this, is being in “default”. This means your debt has been handed over to attorneys by your credit provider(s) and they will be (or are) taking steps against you to recover the money.
- The final stage in the process is having judgement made against you where a court holds that you are legally obliged to pay over the amount to your credit provider and your debt is now known as a judgment debt.
There are various steps that you can take in this process to prevent arrears ending in judgement. But, what if your credit score is low or you have this cloud following your name and you are in need of a loan?
People with low credit scores or that have been blacklisted usually find it difficult to obtain loans from most general credit providers. Why? These providers view them as too much of a risk for their business models. Luckily, it’s not too late.
What to do if you’ve been blacklisted?
We recommend you contact the National Debt Mediation Association of South Africa, a non-profit organisation that can assist you in negotiating with your creditors.
What are bad credit loans
Bad credit loans or blacklisted loans are basically loans offered to people with bad credit scores or people that have been blacklisted in South Africa. Certain service providers are willing to loan money to consumers, even if their credit score doesn’t look great or even if they have been blacklisted.
These institutions still have certain requirements that have to be met in order to obtain a loan:
- They will still do a credit check;
- Look at your payment history and bank statements;
- Accurately assess if you can afford the loan.
This is not only to protect themselves but is also in your best interest, as there are many dangers in taking out a loan that you cannot afford.
Higher interest rates usually apply to compensate for the higher risk that they are taking. But, if you have bad credit or are blacklisted, obtaining a loan with these providers will be much simpler and your chances of success much higher.
Why you should avoid Bad Credit Loans
Even though obtaining a bad credit loan can seem like the right solution for your financial problem, there are a few things to keep in mind.
High Interest Rates
The fact that providers will charge higher interest rates does not only make the loan more expensive, but results in a higher monthly installment. If you fail to make a payment, this will also do a lot more damage. The compounded interest will make the loan even more difficult to pay off as the outstanding amount increases exponentially.
People with bad credit scores often find themselves in desperate situations, so they are easy prey for scammers. Fortunately, there are steps to protect even those that are blacklisted in South Africa. Make sure the person offering you the loan is a Registered Credit Provider with the NCR. These credit providers have to comply with the rules and regulations created to protect South African citizens from exploitation.
Loans you cannot afford
Not being able to afford a loan takes into account various aspects. The first is the size of the instalment that you will have to pay each month. Will you be able to pay it over and above other household and debt commitments? Also consider whether the amount of debt that you are paying off each month, is increasing to such an extent that you have to take out additional debt to pay off your existing debt or even to pay your day-to-day expenses. All these are a sign of unhealthy debt, and will indicate that you are not able to afford another loan.
If you find yourself in such a situation, consider consumer credit counselling where debt counsellors can negotiate with your creditors on your behalf for lower interest rates and monthly instalments. When doing this, make sure you choose to work with a legitimate credit counselling service that is registered with the NCR.