Credit can be a powerful tool when used responsibly – but understanding the difference between good and bad debt is essential. Just as a balanced diet supports long-term health, smart borrowing can lay the foundation for a stronger financial future.
A recent national survey by short-term lender Wonga polled over 12 000 South Africans to interrogate financial behaviour and lending habits, and the results showed that 26% are borrowing to build a better life with loans to pay school fees, home improvements, or start a small business.
This type of borrowing can be the key to helping more South Africans not only stay afloat, but to make tangible changes to their livelihoods that will positively impact their futures.
Where credit applicants may be weighing up their options, Manyanya shared the following five tips to understanding good credit:
- Good credit use stems from good intentions: Credit can be a powerful tool to achieve financial aspirations but must be used responsibly. Setting goals, managing unforeseen expenses, or bridging cash flow gaps with careful consideration of repayments and the total expense of the loan must be considered.
- Regulations and legislation are key: investigate who – and from where – one is borrowing from to ensure that all the checks and balances are ticked, including making sure they are registered with the National Credit Regulator (NCR). It’s essential to make sure that when borrowing, the lender in question is registered with the National Credit Regulator (NCR); this affords both the borrower and the lender protection under the National Credit Act.
- Good credit is still credit, and will need to be paid back:all credit and lending options include repayment requirements including interest rate, monthly instalments, and total repayment needs like balloon payments. Loans and credit facilities are subject to formal quoting and terms and conditions, which should be assessed prior to signing and securing the loan.
- Be careful with informal lenders: Informal lenders are risky, and may offer fast money, but they are unregulated and borrowers have no legal protection under the NCR; meaning that they may be subject to unreasonably high interest rates, penalties, or loan terms. Additionally, informal loans, as their name suggests, do not leave a credit footprint and cannot help a borrower build a credit history.
“Credit, when understood and used wisely, can be a lever for progress – turning school fees, home improvements, or small ventures into stepping stones for a better life. While innovative products and smarter regulation may eventually bridge the gap between formal and informal lending, in the meantime cultivating knowledge and awareness about credit remains the most powerful way to unlock safe and meaningful access,” concludes Manyanya.
