When you enter into a contract in terms of a mortgage, overdraft, credit card or a fast cash loan, you have entered into a consumer credit contract. In simple terms, consumer credit is an agreement with specified terms made between a consumer and a licensed moneylender.
What you need to know
You should take the time to understand and familiarise yourself with what you are getting into before signing any consumer credit contract. Here are the key details you should know:
- Total repayment amount
- The interest rate and any other fee attached to it
- The repayments you will make
- What to do in case you are faced with a difficulty
- The process of cancelling a loan
The licensed moneylender must put all this information on the table before you sign up for anything. This process is called disclosure, where you will read and understand everything about the contract. If you do not understand anything, you should ask the licensed moneylender for clarification. At the same time, you can also seek independent advice from a third party – be it for application of an instant cash loan or consolidation loan.
What the licensed moneylender must disclose
After signing up for a loan, your licensed moneylender must provide information about the life of the loan throughout the repayment period. If the licensed moneylender uses a standard form contract for all customers, they should publish it clearly on their website.
For as long as the licensed moneylender operates a public business, all information must be published on a notice board or given to customers free of charge. As a customer, you should take home a form displaying this information or read up on it on their website so that you can compare it with other loans.
Look out for default fees
Ensure that any default fees charged by the licensed moneylender are reasonable. Below are some of the costs you should expect and what they are. You should remember that the fees mentioned below are not operating on a flat rate, but rather depends on the type of loan that you are applying.
The establishment fees should be equal to or less than loan processing. Establishing fees involve setting up the loan, processing and advancing the loan.
In a case where the borrower makes an early payment of their fees, the licensed moneylender will be forced to charge a reasonable fee to cover losses resulting from early loan repayment. This is called prepayment fees. Such fees can include administration costs or any damages as a result of the re-lend interest rate.
Licensed moneylenders will charge a certain percentage of the total loan payment over a given period. Before signing up for any loan, ensure that you are comfortable with their interest rates.
If by any chance, the borrower breaches the contract, the licensed moneylender will be forced to enforce the credit contract. However, the default fee cannot be more than the amount that compensates the licensed moneylender from the cost incurred as a result of the borrower’s breach.
If you have previously borrowed funds, you may know or have encountered some of these charges above. While there are other essential factors to consider, the above points are the key things you should know about consumer credit contracts.
The most important thing is to spend as much time as possible with the licensed moneylender by asking questions about the contract that you are about to sign into.