Credit can sometimes serve as your saving grace, but if you can’t pay your loan on the date you originally agreed to or miss out on one or several loan instalments, credit can start to feel like another nail in your coffin. Sudden changes in your financial situation or more unexpected circumstances can cause a lot of issues when you have outstanding credit – and yet the situation described here is true for many people in South Africa.
Can’t pay your loan? About to miss an instalment? Here are your options.
Step #1: Contact the Loans Provider
If you spot that you might not be able to settle your loan balance or instalment in time, your first course of action should always involve contacting the loans provider in writing to let them know.
According to the National Credit Act, you’re allowed to make alternate arrangements with your credit provider in the event of an emergency – but also according to the NCA, the credit provider has no legal obligation to accept the offer.
Missing a Payment: Your First Notice
Here’s what can happen if you miss the first payment for credit cards, instant loans and personal loans.
– Credit Cards: Missing a due credit card payment on the agreed date is likely to incur additional fees on the payment amount, and missing several can result in losing access to your credit card for good. Arrangements can sometimes be made to move your credit card repayment date to a more convenient time in the month to avoid further issues.
– Instant Loans: Instant loans and pay-day lenders like Wonga and Boodle will require payment on a specific date agreed to in the terms and conditions for the loan. If you don’t pay on the agreed date (and don’t make any arrangements with the company to let them know about your situation), you’ll be issued with a legal notice to settle your balance or make arrangements. If you don’t, your account could be handed to legal representation instead.
Also keep in mind that the majority of instant loans are deducted from the next available balance in your account (often as the full amount) once the payment is due and money is available.
– Personal Loans: Missing out on a personal loan instalment is likely to get you a notice-to-pay from your loans provider, and it’s likely to incur additional interest on your existing loan. Contact the loans provider immediately if you’re about to miss a payment. Some loan providers will offer debt consolidation loans that allows credit to settle outstanding loans, but getting a debt consolidation is reliant on your credit score.
– Debit Orders: If you’ve set up any regular debit orders (whether monthly medical aid payments or Netflix) and you don’t have enough money in your account to pay it, you could incur additional fees from your bank when payments are declined – and the money will likely be deducted from your next deposit.
Remember that missing payments on outstanding credit or loans will likely affect your credit score.
What to Avoid
Honesty is valued in the world of credit; if you can’t pay your instalment or you’ve hit a bad situation, it’s always best to make alternative arrangements where possible.
If you don’t, your loans provider can automatically assume that you don’t intend to pay the loan and proceed with legal steps from there. But if you did contact your loans provider ahead of time, you’re closer to being on the same page, and many loan providers will work with you instead of against you.
What Happens When You’re Handed Over
If you’ve ignored a notice-to-pay, haven’t settled your account and haven’t contacted your loans provider by the date specified in your notice, your loan account will be handed over to a legal representative. From there, you’re issued with a notice to get in touch with the legal representative instead of the loans company to settle your account – and the matter can go to court if this notice is still ignored.
Credit Scores and Brownie Points
Always know what your credit score is, and keep it in good standing from there. Your credit score could be negatively affected when you don’t settle your credit in time, and this affects the likelihood of qualifying for credit again in future.
As a last resort when you’re overwhelmed by credit, there are many excellent debt review counsellors registered with the National Credit Regulator (NCR) who can help.