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Consumer Alert

You have the Right to Credit Options

The purpose of this communication is to alert the media and the public about credit options and the right of consumers to enquire about these options and the cost of credit.

What credit options are available to consumers?

At this time of the year when interest rates are low, most consumers will be flocking to retail stores to purchase presents and goods for the festive season but also larger items such as furniture, motor vehicles, jewellery, equipment, etc.

Unfortunately many consumers overextend themselves during this period, so it is important that consumers keep their payment options in mind and do not spend more than they can afford.

Consumers have options when purchasing goods on credit and should be aware of the alternatives and the implications.

Consumers may purchase goods for cash or on credit. Consumers may also purchase these goods through loans (cash loans). For each of the options there are different financial implications, terms and conditions.

What are the benefits of paying cash?

• Paying cash (or using a debit card) is the cheapest option as no interest is added to the purchase price;
• Consumers can also often negotiate discounts;
• It is easier to "shop around" for the best price.

What other financial means are at a consumer's disposal?

One can buy on credit. This is the second cheapest option in most instances. The other option is a cash loan, in most instances, the most expensive option. All credit type options have additional cost implications, such as finance changes or interest.

Finance charges that may be recovered on a credit agreement (Hire Purchase agreement) are regulated by legislation and may not exceed 20% per annum (1.67% per month) for transaction amounts not exceeding R10 000 and 17% per annum (1.42% per month) for amounts exceeding R10 000. Ownership of the purchased goods only transfers to the consumer upon full settlement of the debt.

Finance charges that may be recovered on a loan agreement are unlimited if the money lender is registered as such with the Micro Finance Regulatory Council (MFRC). In other words, a registered money lender may charge any finance charge rate (most lenders charge up to 30% per month) on loan amounts that do not exceed R10 000.00. If goods are purchased with proceeds of a loan agreement, ownership of purchased goods transfers immediately to the borrower.

The Usury Act Exemption Notice permits a money lender such as furniture stores that are registered with the Micro Finance Regulatory Council (MFRC) to levy unlimited finance charges through money lending transactions they enter into with borrowers on condition that the transaction amount does not exceed R10 000.00.

The Credit Agreements Act prohibits credit providers such as furniture, motor dealers and other retailers from giving loans to raise the minimum deposit required to purchase goods such as furniture, motor vehicles, jewellery, electrical and non electrical appliances, etc.

What are your rights when purchasing on credit or applying for a cash loan or other credit?

• Credit providers have an obligation to explain contract terms and conditions to consumers in a language they understand
• Contract terms and conditions should be explained to prospective borrowers in a language they understand.
• Consumers are furthermore advised to read contracts or agreements carefully and ensure that they understand the terms and conditions before placing their signature on the contracts or agreements. By signing a contract, a consumer signifies consent and understanding of the terms and conditions of the contract and therefore becomes legally bound to fulfill the legal contract obligations.
• Ask as many questions as you can and ask for disclosure of the final cost of the item, i.e. including all the interest and compounded interest if applicable.

Set out below is a table illustrating financial implications of each option when purchasing goods such as furniture, jewellery, equipment, etc. from a store registered with the MFRC as a money lender.

Repayment periods for most micro loans are shorter as the period is not prescribed, as is the case on a credit agreement. The table therefore shows financial implications for various repayment periods (6, 12 and 24 months) for loan agreements.

Purchase Option	Purchase Price	Interest Rate	Repayment period	Monthly repayment	Total Amount Payable	Conditions
Cash	R5 000.00	0%	0 months	R0	R5 000.00 excludes other fees such delivery	Ownership of goods transfer immediately
Credit Agreement	R5 000.00	1.67% per month	24 months	R229.12	R 6242.90 – excludes other fees such as delivery	10% deposit – R500.00 Ownership of goods transfer upon settlement of debt.
Loan Agreement	R5 000.00	30% per month	24 months	R1502.77	R36066.44 – excludes other fees such as credit life insurance	Ownership of goods transfer immediately
Loan Agreement	R5 000.00	30% per month	12 months	R1567.27	R18807.24 – excludes other fees such as credit life insurance	Ownership of goods transfer immediately
Loan Agreement	R5 000.00	30% per month	6 months	R1891.97	R11351.83 excludes other fees – e.g. credit life insurance	Ownership of goods transfer immediately

What action can you take

If you suspect that an institution is charging excessive interest rates or does not comply with the MFRC or Usury Act provisions please contact the following:

the dti Customer Contact Center at 0861 843 384 (ask for the consumer help line) or facsimile (012) 394 2436
Or write to the dti at:
the dti
Consumer Complaints
Consumer and Corporate Regulation Division
Private Bag X84
PRETORIA
0001

Other Services:

The Education and Compliance directorate issues this information as part of an overall education service to consumers. The directorate also offers the following services:

• Advisory opinions and clarifications
• Presentations
• Information materials