As South African households continue to face increasing financial pressure, the Credit Association of South Africa (CASA) is urging consumers to carefully consider affordability before taking on any form of credit.
According to Leonie van Pletzen, CEO of CASA, credit plays an important role in supporting consumers, households and economic growth, however, responsible borrowing and responsible lending must always go hand in hand.
“Credit can be an important financial tool when used responsibly,” warns van Pletzen. “However, every credit commitment should be affordable and aligned with a consumer’s financial circumstances.”
“Taking a few moments to assess affordability before committing to repayments can prevent financial hardship later,” she says.
Affordability is the first line of consumer protection
South Africa’s affordability assessment framework exists to protect consumers from becoming over-indebted. Before taking on any form of credit, consumers should ensure they can comfortably meet the repayments while still covering their essential monthly living expenses.
When affordability is not properly considered, consumers expose themselves to several financial risks.
The stacking trap
It is often the accumulation of several smaller credit commitments and not one large loan that places consumers under financial pressure.
“Multiple repayment obligations across different credit products can quickly build into a monthly repayment burden that exceeds what a household can realistically afford,” states van Pletzen.
Punitive fees, charges and legal costs
Missing repayments can have serious financial consequences. Interest, default charges, collection costs and legal expenses can significantly increase the total amount owed, making it even more difficult for consumers to recover financially.
Credit record damage
Failure to meet repayment obligations can negatively affect a consumer’s credit profile. A poor credit record may make it more difficult or more expensive to access future credit and may limit opportunities to obtain vehicle finance, home finance or other essential financial services.
How to protect yourself
CASA encourages consumers to ask themselves the following questions before taking on any form of credit:
- Can I comfortably afford the repayments every month?
- Have I considered all my existing financial commitments?
- Is this purchase necessary, or can it wait?
- Do I fully understand the costs, terms and consequences if I miss a payment?
“Consumers should also avoid taking on additional credit simply because repayments appear small in isolation,” says van Pletzen. “Every repayment commitment forms part of an overall monthly budget and should be considered alongside existing obligations.”
“Responsible lending and responsible borrowing are equally important in creating a healthy and sustainable credit market,” she continues. “Affordability assessments remain one of the strongest consumer protection measures available because they help ensure that credit is extended responsibly and within a consumer’s means.”
“Consumers should never borrow based on what they hope they will earn next month, instead they should borrow based on what they can comfortably afford today,” concludes van Pletzen. “Financial decisions made with affordability in mind are the foundation of long-term financial wellbeing.”
