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Lenders generally make loan decisions based on your credit score, but not all lenders refuse to lend to consumers who are under debt review. It’s important that you do your homework before applying for a loan.

Consumers under debt review are encouraged to live within their means, but this can be difficult for some. Desperate consumers may seek out loans from unregistered credit providers to maintain their lifestyle, but this could put them back into debt.

Reckless Lending

There’s a certain amount of risk involved with borrowing, especially when you borrow money that you can’t afford to repay. This is why it’s essential to follow responsible lending practices and make sure you only borrow what you can comfortably pay back. Unfortunately, many consumers fall victim to reckless lending and end up in a vicious debt trap they can’t break out of.

The National Credit Act (NCA) contains several prohibitions against credit providers entering into credit agreements with consumers that are reckless. Summit Financial Partners, a financial wellness company that offers debt counselling services, gained a reputation as a consumer champion after it successfully took legal action against credit providers in order to protect its clients from reckless lending practices. In one instance, the NCT found that Direct Axis SA granted credit to four consumers with no reasonable assessment of their affordability.

An affordability assessment takes into account a consumer’s existing financial means, prospects and obligations. It must also take into account any existing debt repayment history and a credit report that was available at the time of application for credit. Credit providers who fail to conduct an assessment are guilty of reckless credit granting and the NCA stipulates that a court may suspend the force and effect of the agreement for a period or set aside the credit agreement altogether.

Salespeople Selling Credit

Traditionally the interaction between credit and sales teams has been adversarial. Credit believes that salespeople are unconcerned about collections and simply want to sell to anyone to meet their quotas. Salespeople believe that they are being treated as a nuisance and are an obstacle to selling new accounts. But what if these two departments could work together to create a win-win situation for all? In this episode Linda Kester examines the common misconceptions that both departments have of each other and discusses methods for creating the synergy necessary to achieve a successful business.

Some lenders are prepared to provide loans to people who are under debt review payday loans as long as they have a solid repayment plan and can show that they are making payments on their existing debts. This type of loan is known as an unsecured personal loan and it’s important to carefully read the terms and conditions to ensure that you understand what you are signing up for.

You can also consider getting a short-term loan which is designed to be repaid in a few months or less. These loans are often easier to qualify for than a mortgage or vehicle loan as they don’t require you to pledge any assets as security. However you must make sure that you can afford to repay the loan and choose a lender with fair rates and fees.

Unregistered Credit Providers

The National Credit Act requires certain categories of money lenders to register as Credit Providers. These include individuals offering personal loans to family members or friends and companies which offer commercial loans. The Act also stipulates that anyone who offers credit to a consumer must give him/her a written quotation (or “pre agreement”) document, which sets out the total cost of the loan. Failure to do so may result in the credit provider being found guilty of reckless credit.

If a Credit Provider who has not registered as such concludes a Credit Agreement with a consumer, the Act stipulates that the Agreement is unlawful and therefore void ab initio. Previously, the Act would have stipulated that the amount paid or credit extended by the Credit Provider will be forfeited to the state but this has been changed by the Constitutional Court ruling in the case of the National Credit Regulator v Opperman and Others 2013 (2) SA 1 (CC).

This decision is a major departure from common law and makes it more difficult for unregistered credit providers to claim back any money or property lent to or advanced to consumers. It is important to note that the Court will only grant orders in this regard if the credit provider proves that the consumer was unjustifiably enriched. This is a high bar to achieve and will likely only be achieved in cases where there was considerable turpitude on the part of the credit provider.

Loan Sharks

If you have bad credit and are thinking about borrowing money from a loan shark, don’t. These illegal lenders can cause serious financial problems and even violence if you don’t pay back what you owe them. Instead, find a trusted debt counselling service to help you work out a realistic repayment schedule that will meet your needs.

Loan sharks are illegitimate lenders who don’t play by the rules, and often charge excessive rates of interest or threaten violence to collect debt payments. They may also take possessions like passports or bank cards as security for the loans they offer.

Many people who use loan sharks are in need of a short-term loan to cover expenses, such as unexpected costs or an emergency repair. These lenders operate more informally than salary or payday lenders, meaning they can be less easily scrutinised by law enforcement. They are also more likely to be willing to serve high-risk borrowers who would be turned down by other mainstream lenders.

These types of predatory lending practices can occur in any country, and laws regulating lending practices vary widely. This is why the term “loan shark” is used so commonly to describe this type of lender, even though it could also be applied to lenders who comply with the laws in their jurisdictions but still engage in unfair practices.