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Don’t become a victim of predatory lending

by | Jan 7, 2022 | Personal Finance

With high rate of unemployment, rising cost of living and stagnating incomes – more and more South Africans are becoming victims of predatory lending.  

Predatory lending refers to any loan practice that is unfair or abusive to the borrower. This takes place when unscrupulous (normally unregistered)  money lenders, commonly known as mashonisa’s in South Africa  – grant loans to desperate people who cannot access loans from registered credit providers. The interest rates on these loans are usually exorbitantly high, sometimes reaching three digits. These lenders also pile on unreasonable admin and penalty fees. Very often, desperate borrowers sign whatever they have to in order to get the much – needed cash, putting themselves in a vicious cycle of debt.

Predatory lenders rarely follow the rule of law. So while it may seem like a blessing that you are not being asked to fill out tons of paperwork and having to submit to a credit check and other affordability tests, it really isn’t. These types of lenders are known to claim the assets from a borrower who cannot repay a loan. Nobody wants to be in that situation. Yet sadly, many consumers are.

Investigations by the NCR and SAPS often show that mashonisas regularly require consumers to hand over their identity documents, bank and social grant cards,  as a condition of getting a loan.  This is a criminal offence. Yet, few people report it.

In 2018, Wonga SA released a report which found that that non-registered credit lenders, or appear to be more widespread than previously thought, with as many as 40,000 operating in South Africa at a ratio of 1:100 for every household in informal settlements.

“There is no clear demographic that identifies a mashonisa – they aren’t all big scary men. They are ordinary people from the community who have some cash available and see this as a viable form of employment. Start up cash can be as little as a few hundred rand, but are typically payouts from a retrenchment settlement or provident fund,” said Brett van Aswegen, CEO of Wonga SA.

The last NCR Credit Bureau Monitor indicates that the number of consumers with impaired credit records increased by 98 892 to 10.17 million between July and September 2021. The number of accounts no longer in good standing increased from 19.86 million to 20.16 million.

More and more people are struggling to make their debt repayments, and even more are unable to afford everyday necessities. So it does seem likely that predatory lending will continue to rise.

Sebastien Alexanderson, CEO of National Debt Advisors encourages debtors to take control of their finances before they become victims of predatory lenders.

“South African consumers need to become informed about what their rights and options are with regard to debt management –  so that they can prevent becoming over-indebted, having defaults and judgements reflect on their credit record and ultimately cut off their access to regulated, registered lending. Debt counselling may not be the solution to everyone’s debt problems, but it is an option that anyone struggling to pay their debt, should explore”

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