Unsecured, unregistered lenders are adept at this type of advertising. Their goal is simple. Attract the young, the gullible and those without any financial savvy. If their customers get themselves into financial difficulties, they don’t care. They will get their money back one way or another.
This is far from what those on the other side of the coin; registered lenders that adhere to the national credit act, would describe as responsible lending. Interest rates can be as high as 225% per annum and more. It’s more than irresponsible lending. It’s reckless and dangerous.
This type of lending is so dangerous because the loan companies make it easy to apply. It attracts people who are either unsavvy where money is concerned or who find it difficult to get money from other more stringent lenders who require a plethora of proof that you can afford your loan e.g. evidence of employment, regular earnings, copies of bank account statements etc.
Others are drawn to the informal lending market simply because of the convenience and speed of this lending format, often the ‘local loan shark’ is literally across the road from you. You can learn more about the current climate of unofficial lending in S. Africa in this ‘informal lending report’.
Championing responsible lending and borrowing.
There have been sweeping reforms on the payday loan industry in recent years to control interest rates and the terms under which a person can apply for credit. Legitimate lenders are now (by law) ensuring that potential customers can actually afford their loan repayments, unregistered loan sharks do not promote such transparency. They know it’s not in their favor to do so. They prey on the vulnerable.
The rates of inequality in South Africa are amongst the highest in the world, allowing ‘mashionisas’ and other non-registered lenders to emerge and thrive. It’s a concerning trend that has led to 40% of borrowers struggling to repay such loans.
Ensure that the lender you’re dealing with has a website and phone number, where they must declare themselves as a registered Credit Provider and provide a registration number.
Take your time and research what you actually need.
The one thing that you should never do if you are thinking of taking out a loan is to rush. While this is often difficult to do as the nature of these loans typically means you need the money as soon as possible, it’s far better to take your time and do your research correctly. In general, the shorter the duration of the loan, the better.
It means that you will pay less interest. But an instalment loan may be more appropriate to your circumstances than say, a payday loan. There may be other options available that serve your needs better. Your first stop should more likely be debt advice from impartial institutions that aren’t trying to sell you their own loan product.
Shop around and use benchmarks.
When you do your research and decide on what the actual loan type you need is we encourage you to check out several lenders. Make sure they are all NCR approved and be wary of relying solely on ‘comparison websites’ as often these sites make their money on commissions. The lender they show you as ‘the best’ might not actually offer you the best deal, they’re simply paying the comparison website the most money to ensure they appear first on their list of results.