How to best manage your loan

Taking out a loan is usually easy, but managing it is another story. We chat to Pieter du Toit, CEO of FNB Smart Loans, regarding managing your loan.

If you can’t make your monthly repayments every month what do you need to do?

On your terms and conditions, the credit provider should give you contact details for the collections department. You are advised to contact them and make payment arrangements. This will, however, extend the loan period. If you do not contact your bank, they will be forced by law to report this to the credit bureaux and will have a negative effect on your credit profile, making it more difficult for you to get credit in future.

If you have a fixed loan and you decide to pay extra towards the loan amount, will the interest change and will the final payment amount stay the same as calculated when you applied?
When you pay extra into a loan, the extra money helps to reduce the outstanding debt. When your debt is lower, the amount of interest you pay becomes less. However, as this is a fixed interest rate, the actual percentage that you are charged remains the same but you decrease your capital. This means that you will pay off your loan quicker, therefore shortening your repayment period. This is always a good thing.

How would you advise our readers regarding informal lenders and how can they protect themselves?
Informal lending, although unregulated, is often the only avenue open to some people, as many formal institutions require employment before offering credit. Although it is not advised to go to informal lenders, formal institutions can often not assist. If you are forced to go to an informal lender, you must never leave your ID book or bank cards and never ever give them your pin number to your bank card. You must always get it in writing how much you are going to pay by the time your debt is finished.

Depending on monthly income, how many loans should one person have and for how much?
You should try not to have debt. It is always better to save than it is to borrow, and in a culture that exists in SA, more people borrow than save. This has a negative effect on the country as a whole and should be discouraged at every opportunity. If you need to borrow in an emergency, one should always make a list of your regular / monthly expenses and subtract that from your take-home pay. The money that is left can be used towards a loan repayment and this should never exceed 60% of your take-home pay.

Should one consider debt consolidation?
Yes! It’s always the better thing to do. Reason being, when you consolidate your debt, you are able to negotiate a better interest rate. You will only pay one debit order fee on your bank account and in the event you need to negotiate with your bank about extending your term, you only have one person to contact, rather than many creditors. More often than not when you consolidate your debt, your total instalment will be less than what you were paying previously. A wise person will invest that extra money into a savings account so that they will have money for a rainy day.

What is a customer protection plan?
This is an insurance product that protects you and your family in the event you pass away, become retrenched, are temporarily or permanently disabled, or suffer an unexpected event. Most credit providers offer customer protection plans (CPP) with their loans and charge on a monthly basis for this insurance. It is important for you to read the terms and conditions so that you know what you are covered for. Not all CPPs are the same. Each product is different and are often known by different names. You are not forced to accept the CPP on offer; you can have your own policy as a replacement as long as it is the same as or better than the one on offer by the bank.

Your five basic tips for managing your loan effectively?
1. Never skip a payment.
2. Always pay on time.
3. If you have extra money, pay it towards your loan.
4. If you cannot pay, always contact your bank.
5. Tell your family about the CPP and explain how it works and what it covers.