In tough economic times, most South Africans are looking to reign in their spending and cut back on unnecessary costs as far as possible.
An overlooked area of reigning in spending is to revisit the hidden costs associated with your personal loan.
Most people assume that these monthly repayments are fixed and that there’s little that can be done to trim costs, but an area where significant savings can be realised is on the cost of the credit life insurance which most banks make mandatory when taking out a personal loan, explains Tlalane Ntuli, co-founder and chief operating officer of digital insurer Yalu.
If you currently have a personal loan, you will have credit life insurance which banks require as security for your debt should you become unable to service your loan repayments due primarily to death, disability or retrenchment.
Most people don’t even know they have this cover or how much its actually costing them – people simply accept the credit life insurance that’s offered at the point of signing their loan agreement to avoid the "hassle factor", never giving it a second thought again.
In fact, most consumers don’t know that they are not obligated to take this cover with the bank and that there are more affordable options with better benefits available to them. Even on an existing loan, you can switch your credit life insurance to a provider that offers lower rates and benefits without any repercussions for your loan as long as there is no break in cover, explains Ntuli.
New credit life insurance regulations came into force in August 2017 which capped credit life insurance costs to R4.50 per R1 000 loaned, and it allows consumers to select their own preferred credit life provider rather than the bank offering, and to switch their existing cover should they find a product offering that better meets their needs.
What’s particularly important to note is that the capping of fees for credit life insurance premiums only applies to new loans and not retrospectively. This means that you could easily be paying more than double the new capped rate for your credit life insurance.
“If you’re looking to cut costs, take a good look at your current personal loan agreements and make sure you are paying the best possible rate for your credit life cover. The money saved can rather go towards paying off your existing loan and reducing the impact of compound interest on your pocket, or can be redirected to paying for more essential household expenses,” says Ntuli.
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