Even with the new credit act the big banks are still milking the people of this country.
The blame is not entirely in their hands due to the fact that people accept the terms and conditions without reading them.
Here are a few examples of how banks make lots of money.
A person with bad credit applies for a loan at one bank but as the bank knows the risk is very high they sell the loan to other banks. (Standard bank does this with African Bank)
The applicant is told he will pay a 10% interest rate and it sounds like a good deal.
What is not explained to the client is that this is not such a good deal at all. The rate is 10% per month not per year and the payment terms are not in his favor either.
If you get a 10% rate per year it is really good and it means that if you borrow R1000 at the end of the year you must pay back R1100.00 giving a nice 10% rate. However as this loan is 10% per month and depending on what time of the month you pay it has all sorts of implications.
If you pay back the loan only at the end of the year you have to pay R3452.27 that is a nice 245% extra. If you choose to pay R141.00 back on a month to month basis at the end of each month after interest is added you pay R1827.57 (R135.57 in month 13) that is almost 83% extra. If you pay the same R141.00 at the beginning of the month before interest is added the total will be R1531.85 with final payment on month 11 of R121.85 that is now only 53% extra.
So for the same R1000 loan at the same monthly interest of 10% you could pay anywhere from 53% to 245% depending on how you choose to pay it back.
Now for a person with a good credit record that borrows the same R1000 from a bank even at a massive 53% per year rate and settles the account at R141.00 per month paid at the end of the month you will still settle the account in 9 months with a final payment of R48.29 for a total payment of R1178.29 that’s less than 18%.
Even if the rate is a massive 245% per year the same R141.00 payments will take 14 months to settle the account with a final payment of R41.46 in month 15 giving you a total payment of R1833.00 bringing it down to 83%
In the end we all need money to make things happen but as far as the credit regulations act is concerned it is a joke. Banks are allowed to do the most despicable things when it comes to borrowing of money and the poor people who need these loans the most are getting screwed over as the government looks the other way.
Laws should be passed preventing this sort of exploitation taking place. A 25% per year rate should be set as a maximum for all the loan sharks and banks. The most important part in all of this is that the credit act should not be used to see if you are good for the loan only but if the loan itself is good for you.