Firstly, know that you are not alone. Due to the loss of income caused by lockdown, many South Africans find themselves in the same situation. You are doing the right thing by equipping yourself with as much information as possible before making financial decisions which can affect your future.
Lockdown has affected the income of many South Africans. Some people have lost their jobs and their entire salary. Others have been left with reduced salaries. Either way, the interruption in income is causing financial hardship and people are struggling to survive.
Many have already maxed out their credit and store cards – and this makes the prospect of an emergency loan so attractive to them.
Emergency loans are completely legal. They are defined in section 1 of the National Credit Act as a credit agreement entered into by a consumer to finance costs arising from or associated with:
Death, illness or medical condition
Unexpected loss of interruption of income
Catastrophic loss of or damage to home or property due to theft, natural disaster.
The loss of income due to lockdown is definitely seen as an “interruption of income” and provided all required documents are in order, you can apply for an emergency loan from your bank.
A consumer’s word that their income has been interrupted, won’t be enough. According to the NCR, where a consumer submits a declaration under oath as proof of the existence of the emergency, the declaration must clearly state the cause of the emergency, and where the cause of the emergency is the unexpected loss or interruption of income, the declaration under oath must also provide the details of the employer (for employed persons), or the details of the business (for self-employed persons).
In terms of section 78 of the NCA, the over-indebted and reckless provisions of the NCA do not apply to an emergency loan. In other words, credit providers do not have to conduct an affordability assessment before the granting of an emergency loan.
This then means, that consumers are not protected by the reckless provisions of the NCA in respect of emergency loans. There will be no recourse for consumers if and when they ultimately cannot repay these loans. They will not have the option of approaching a debt counsellor to investigate the validity of a reckless loan claim.
Banks and micro lenders are likely to adjust their score cards to allow a greater range of consumers to qualify for their products.
Different banks will have different appetites and scoring requirements. There is a concern that the banks are being given carte blanche to lend recklessly – and already cash-strapped consumers are going to struggle to make payment on loans which they could not afford in the first place. Non-payment and skipping of payments will ultimately negatively affect their credit score. Circumstances and reasons amongst those applying for emergency loans may differ and it is my hope that those granting the emergency loans will explain to consumers (in detail) what the repercussions of such a loan can be.
Find out exactly what the interest, terms and conditions of your emergency loan will be before signing for it.
Just like it is up to us to take responsibility for our physical health and the health of our families (and continue trying to stop the spread of Covid-19) we have the same responsibility towards our financial health. It is up to us to find out as much information about the products and options available to us, in these trying times. Well done to you for taking the first step towards your financial empowerment.