Good For Credit Booklet - Capitec Bank Capitec Bank
goodforcredit
DisclaimerThe information contained in this booklet is of a general nature and intended as a guide only. It is neither tobe construed as financial advice nor to be regarded as a definitive analysis of any financial, legal or otherissue. Individuals must not rely on this information to make a financial or credit decision. Before makingany decision, we recommend you consult a financial planner/advisor to take into account your particularobjectives, financial situation and individual needs.Capitec Bank Limited and its directors, officers and employees shall not be held responsible and disclaims allliability for any loss, damage (whether direct, indirect, special or consequential) and/or expense of any naturewhatsoever, which may be suffered as a result of or which may be attributable, directly or indirectly, to the useof, or reliance upon any information, links or service provided through this booklet.Always keep in mind that saving rather than incurring debt should be your goal.SourcesNational Credit Regulator: ncr.org.zaBANKSETA: bankseta.org.za
Contentsthinking about creditAre you prepared for getting credit?. 7Good vs bad credit – know the difference. 8How much credit can you afford?.10Types of credit –which is right for you?.12Before applying for credit. 135 steps to shop around for the best offer.14Fees, charges and other costs of credit.16How to compare credit costs or quotations.18how to apply for creditWhat do credit providers look at?.21How to improve your chances of approval .24Understanding loan agreement documents. 28ways to manage your creditWhat are your responsibilities?.31The benefits of paying on time. 32The benefits of paying more per month. 33Protect your assets. 34Tips to stay in control of your finances. 35when help is neededStruggling with debt?. 37Voluntary surrender . 38Debt rescheduling. 39Debt review. 40Debt administration.42Voluntary sequestration. 43Contents 3
How do you see credit?Meet Sean, Emily, Vusi and Sasha.As you follow each of their credit journeys,you’ll get information and answers to manycredit questions – all of which will help youmanage your money better, bank better andultimately live better.Emily is a fashion designer. She’sbeen working for a few years and feelsconfident that she can start her ownside business. Before she takes this bigstep, her bookkeeping skills will needsome improvement. She wants to bejust as sharp as her design pencils. Inher free time Emily learns about credit,because she’ll need a loan to buyequipment for her own workplace andto pay for a few bookkeeping classes.Sean grew up a few blocks away fromEmily. He recently started a new joband just received his first salary. Tonighthe’s taking his buddies to celebrate hisnew career and taking his shiny newcredit card along to the party.In the same city lives Sasha, a singlemom, and her 2 kids. Her car just brokedown. She doesn’t have cash to pay forthe repairs, but needs her car to get towork and her children to school. Sheputs the unexpected expense on hercredit card, knowing that she can pay itback over a couple of months.Vusi is Sean’s manager at work.He wants to renovate his house.He applies for a personal loan to pay forthe renovations, and then pays aset amount every month over aspecified term.Emily, Sean, Sasha and Vusi must understandhow credit works.Contents 5
thinkingabout creditBefore you borrow money, make sure you know whatyou’re borrowing for and whether it’s a need or a want.Is credit the best way to pay for it, can you afford therepayments and what do you need to give up to be able tomake the credit payments? How stable is your income andemployment?6 good for credit
Are you prepared forgetting credit?Credit enables Sasha to immediately pay for her car’s repair, and then pay it off overtime, with added interest. It’s very convenient for her. While she gets her car fixed shedoesn’t have to worry about additional transport costs to get her children to and fromschool.For Emily, credit opens up the opportunity to start her own business. She knowsshe’ll need to manage her finances carefully to pay back her loan and to run asuccessful business. That’s why she’ll also use the credit to improve her bookkeepingskills.thinking about credit 7
Good vs bad credit –know the differenceGood credit will benefit you in the futureand forms part of a larger financial plan tomanage your finances. For instance, buyingproperty or improving your skills. However,always bear in mind that you have to payinterest on any credit you take, and that youmust be able to afford it, no matter why youapply for credit.Vusi knows his home renovations couldimprove the value of his house. If hewants to sell, he’s invested in the valueand upkeep of the house. When Emilyapplies for a loan, she uses good credit.An entrepreneur at heart, she has abusiness plan ready for her own designstudio. She’s investing in her future.Bad credit doesn’t contribute to yourwealth or well-being in the long run. Forinstance, if you use it to buy consumablessuch as drinks or takeaways or you can’t reallyremember what you spent the money on.8 good for creditSean is having a great party. He endsup buying drinks for all his friends anda few people he doesn’t really know.His credit card pays for everything. Inthe morning he realises that he, not hisfriends, will need to pay back what hespent, with interest. He has nothing toshow for overspending.Being good for creditThis is when you use credit for the rightreasons, for instance necessary car repairsor a medical procedure. It also means you’vebudgeted for it and that you can afford torepay the monthly instalments. It’s yourresponsibility to be good for credit.Being a single mom, Sasha’s alwaysbeen vigilant with her spending. 3 yearsago she took out a personal loan, butpaid more than the monthly minimumto pay the loan off quicker. When sheuses her credit card, she pays back thefull amount every month. She budgetsto make sure she can afford it. Usingcredit responsibly in the past, she’s builta good credit history.Benefits of credit By using credit responsibly, you build agood credit history. This is essential whenyou need credit for larger transactionssuch as buying a house Credit gives you the flexibility to make bigpurchases and take up opportunities thatcost more money than you might have atthe timeSean is now more careful with hisspending, but he’s already eyeing a newsmartphone with so many accessoriesit makes his heart beat faster. But beinga smart guy, he now knows that creditisn’t free. He’s still paying off the partyhe had, with interest. The new phoneis a luxury and not a necessity, andbuying it on credit will mean highermonthly repayments than he can afford.Another expensive purchase on credit
could quickly launch him intoa debt spiral.Consequences of credit Credit is not freeInterest, initiation andservice fees, and othercosts are added,which means you paya price for the moneyyou borrowed. Increased impulsebuyingIt’s easy to overuse crediton items that you don’t need. Thenwhen a rainy day arrives, you have maxedout your available credit. Potential financial difficultiesIf you don’t use credit responsibly andstay within your means, it can lead to adebt spiral and over-indebtedness.thinking about credit 9
How much creditcan you afford?Before Vusi can apply for credit torenovate his house, he needs tobudget how much he can affordto repay every month. He sets anafternoon aside to look at his currentexpenses and income.Also take into account the money youpay monthly for things such as familyresponsibilities, e.g. contributing to the careof family members or even the community.Keep in mind that expenses can differ everymonth, so try to put an amount aside forunexpected expenses.To work out your budget, you need your latest salary slipThe amount of money left after all yourfinancial obligations are deducted is howmuch you can spend to repay the loan. your bank statements going back3 months your credit reportFirstly check how much your consistentmonthly income is after taking away nonrecurring income such as once-off bonuses,variable income such as overtime, anddeductions by your employer such as tax,pension contributions and unemploymentinsurance (your net salary).10 good for creditNow make a list of your monthly expenses.These are debt obligations such as yourvehicle instalment, home loan and accounts.Add essential expenses such as food, fueland electricity. Your bank statements will helpyou see which deductions and payments aremade regularly.Now you know how much credit you canafford.
Determine your affordabilityYour incomeLiving expensesOther paymentsAffordability amountRRRRGross income, minus setdeductions such as tax,policies and medical aid.Deduct expenses such asaccommodation, electricity,food, transport, etc.Payment obligationssuch as debt paymentsand fixed expenses likeinsurance and savings.This is the amount ofmoney left to repay thecredit. When you knowhow much money you canspend on repayments,you’ll know how muchcredit you can afford.tipMake sure you’ve also planned for emergencies when calculating your affordability.When looking at affordability, also consider for how long you’re willing to repay thecalculated amount on credit each month.thinking about credit 11
Types of credit –which is right for you?The type of credit you use depends on your needs. Sasha uses her credit card, while both Vusi and Emily apply for personal loans,which they’ll repay over a specified period. A credit card’s monthly payment may fluctuate depending on how much is spent,however, a personal loan’s monthly payment will remain fixed unless there’s a change in interest rate.SituationType of needType of creditSasha has an emergency when her car breaks down. It hasto be repaired quickly because she uses it to go to workand take her kids to school. She has insurance, but therepair costs are too small to claim for. It was an expensivemonth with many school expenses and she has no cashleft to pay for the repairs.Although she has a savings account, credit can comein handy in emergencies like these (health, financial andpersonal). Credit can be useful for peace of mind, offeringher personal and financial security when she needs it most.Credit card/Credit facilityEmily buys equipment with her loan to start a small,successful business. She used a small part of the credit toattend bookkeeping classes to improve her business skills.Working for herself, she increases her income and repaysher loan quicker than she thought she could.Using credit wisely can provide the tools to achieve biggerthings in life. Credit is a way of getting the money tobecome involved in key projects that will help Emily alongher journey to achieving financial success and improve hersocial standing in her community.Personal loanVusi wants to renovate his house. It will increase the valueof his property. He takes out a personal loan that he canrepay over 12 months.A loan to finance home improvements will likely increasethe value of Vusi’s house.Personal loanYou’ve paid off your debt and are now enjoying the benefitsof the asset or improvements you made with the credit youtook.Ultimately, credit should be used as a way to build a betterfuture. Using credit wisely, paying it off and meeting yourfinancial goals will give you a sense of ownership forhaving played an active role in achieving your dreams.Debt-free12 good for credit
Before applyingfor creditAnswer these questions:tipsIt’s always cheaper to buy with cash. With cash you won’t pay interest, fees orother charges associated with credit and you won’t have to worry about keepingup with payments.Carefully consider who you borrow from. You should never borrow fromunregistered informal lenders. They do not comply with the National Credit Act,which means they can charge you fees and interest that are too high and makeuse of unlawful practices when collecting payments.Check your credit profile. Getting your credit report before shopping for creditwill give you an idea of whether there are things you need to work on beforestarting the process of applying for credit. You get one free credit report per year.Be careful to take up credit on behalf of someone else, even if it’s a goodfriend or family. It will have an impact on your affordability when you want toapply for credit for your own needs.credit is not the enemy,bad credit habits are Is applying for credit the only way I canget what I need? Will the loan uplift me financially,getting me closer to achieving mylong-term goals? As the first step to knowing myfinancial health, do I know what mycredit report looks like? Looking at my current budget, will Ibe able to repay the instalments ontime, every time, for the duration of thecredit agreement? Can I afford to repay all my creditand still have money left over foremergencies? Are my income and employmentstable? Do I know the exact amount I needbefore applying for credit? Do I understand the full amount I’llneed to pay back when I add all thefees and interest?If you answered ‘no’ to any of thesequestions, you might need to rethinkyour decision to get credit.thinking about credit 13
5 steps to shop aroundfor the best offerUsed wisely, credit can help you achieveyour goals. Just always keep in mindthat you have to pay interest, fees andcharges for credit.Vusi wants to choose the best creditprovider for his personal loan. He looksat more than one lending institution andcompares their interest rates, fees andproducts. He checks that they’re doingbusiness legally and that there are nohidden fees in the small print.Look at your budget andaffordability to see if you canafford credit repayments.Shop around – not all credit providerscharge the same. Compare creditoptions and decide what will work foryou. Never take more credit than youneed. Remember, you must alwaysbe completely honest with the creditprovider about your finances whenapplying for credit.214 good for creditLook at any hidden costsand double-check the feesand charges. Make sure youunderstand the small print.3
Make sure that the credit provideris reputable and registered. This isimportant because it means that theycomply with the law and will respect andprotect your rights as a consumer.4Once you’ve chosen a product andcredit provider, go back to yourbudget and see if you can afford themonthly instalment shown on thequote, and still have enough moneysaved for emergencies. If yes, youcan proceed.5thinking about credit 15
Fees, charges andother costs of creditCredit can be really useful to help youachieve your goals. However, it’s veryimportant to remember that borrowingmoney is never free.Be informed to make the best choiceThere are various fees and charges that thecredit provider will add to the total creditrepayment amount. When all these fees areadded, they increase the total amount you’llpay back on your loans every month.Fees and charges in a nutshellInitiation fee: This is a once-off fee forentering into a credit agreement. You can paythis fee upfront or you can add it to the totalamount you borrow.Service fee: Credit providers can charge amonthly administration fee.Interest: Credit providers charge an addedpercentage of the amount you borrowed asinterest, which means you pay back morethan you borrowed.Credit insurance premium: Credit providersinsist that you take out credit insurance, whichcovers your debt in case of death, temporaryor permanent disability, unemployment or theinability to earn an income.16 good for creditDefault administration charges: If you fallbehind on your repayments, credit providerscould charge you a fee for this.Collection costs: If the credit provider triesto collect outstanding or overdue debt fromyou, they could add a fee for this.Before entering into a credit agreement Insist on seeing the credit agreement/quotation and go through it carefully toensure you know exactly what you’reagreeing to pay before you sign Make sure you know exactly how muchthe interest, fees and charges are Compare the costs of different creditproviders to choose the best optionWhat else affects the cost of credit?How long it takes to repay your debt alsoaffects the total cost of your credit.Remember that the fees and charges addup over time. Take for instance service fees,which are charged monthly. The more monthsyou take to pay, the more you pay on servicefees. So the longer you take to repay it, thehigher the overall cost of credit will be.That’s another reason why the total amountyou pay in the end will be higher than theamount you borrowed.Emily gets approval for a loan ofR100 000. It’s a lot of money, but theequipment she needs to successfullyrun her business is expensive. Shewants to repay the loan as quickly aspossible, because the quicker sherepays it, the lower the total cost ofcredit will be.
Emily must repay the R100 000 over a5-year term. The interest rate is 21%.Let’s see what happens to the totalamount if:Loan Repayment Chart120 000RAND AMOUNT OUTSTANDING1. She pays it back over the agreed termof 5 years.Total credit cost: R167 386 incl.interest and fees2. She makes large ad hoc paymentswhen she can afford it and continuesto pay her original instalment for theremainder of the loan.Total credit cost: R155 661 incl.interest and fees, and loan is repaid inonly 4 years100 00080 00060 00040 00020 00001224364860REPAYMENT TERMNormal repaymentMaking large ad hoc paymentsFalls behind and reschedules for a lower monthly instalmentReschedules to pay back more each month723. She falls behind and reschedules herloan by extending the remaining term toreduce her monthly instalments.Total credit cost: R182 068 incl.interest and fees, and loan takes12 months longer to be repaid4. She reschedules her loan after20 months by increasing her monthlyinstalment to pay it off quicker.Total credit cost: R153 674 incl.interest and fees, and loan is repaid inunder 4 yearsthinking about credit 17
How to compare credit costsor quotationsWhen it comes to credit, you wantthe best deal possible. That’s why it’simportant to compare offers from afew credit providers before acceptingan agreement.All credit providers structure their offers alittle differently, so what looks like a gooddeal at first glance may end up being costly.Knowing what to look out for makes it easierto tell which offer suits both your needs andpocket.There are 3 ways to compare the offers fromdifferent credit providers:1. the interest rate2. the loan term3. fees, costs and chargestipTo make a fair comparison, ensurethat the loan terms and the loanamounts being compared are thesame.18 good for credit1. How to use the interest rate tocompare credit costsInterest rates may look like smallpercentages, but they make a bigdifference to the total cost of credit.Spot the difference:Below is an example of a R100 000 loan over60 months, with the same initiation fee ofR1 197 (incl. VAT). You can see that the lowerthe interest rate is, the lower the instalmentsand the total cost of credit will be.Interest rate Loan amount R100 000Interest rate(%)Loan term(months)Instalments(R)Monthly fee(R incl. VAT)Interest(R)Total costof credit (R)18602 566.0168.4052 910.35157 560.3523602 848.6568.4069 868.83174 518.8328603 146.2768.4087 726.48192 376.48
2. How to use the loan term to comparecredit costsWhat if the interest rate is good, butyou’re not sure whether to repay the loanover a longer or shorter term? Longerterms mean more affordable monthlypayments. However, keep in mind that thetotal cost of credit will be higher becauseinterest is charged over a longer period.Spot the difference:See how much the total cost of credit is ona R100 000 loan with the same interest rate(28%) and the same initiation fee (R1 050),over different terms:Loan term Loan amount R100 000Interest rate(%)Loan term(months)Instalments(R)Monthly fee(R incl. VAT)Interest(R)Total costof credit (R)28364 179.7960.0049 422.46152 832.4628603 146.2760.0087 726.48192 376.4828842 754.6960.00130 344.04236 434.04thinking about credit 19
how to applyfor creditBefore a credit provider decides to grant you credit, theyfirst need to determine if you’re a reliable credit client.20 good for credit
What do credit providerslook at?Credit providers want to know that the credit they grant will be paid back on time and in full.Therefore, they do a credit risk assessment to evaluate potential borrowers. They do this todetermine if you’ll be a reliable credit client.When they do the assessment they look mostly at your:1. affordability2. employment3. credit behaviourHow to apply for credit 21
What do credit providerslook at?Your affordabilityYour employmentVusi has already checked hisaffordability, but knows that the creditprovider also needs to do this.It’s important to credit providers that you havestable employment. They’ll want to know howlong you’ve worked at your current employerand will also ask for your latest salary slip anda 3-month bank statement showing your last3 salary deposits.Credit providers will always make sure thatyou can afford to repay a loan. They want tosee how much money you have left after allyour deductions and expenses. That amountis used to work out how much you can affordto repay on a new loan, which is called youraffordability.The credit provider will determine youraffordability by: Looking at your salary slip. This showsthe credit provider how much moneyyou take home every month. If yourincome varies because of commission orovertime, the credit provider will calculatean average based on the income over aperiod, usually between 3 – 6 monthsLooking at your bank statement. It canshow how much you already owe and ifyou’ll be able to afford a new loan on topof other financial commitments22 good for creditHaving a permanent full-time positionat his company and not working on acontract basis, Vusi knows that he hasstable employment.This improves his chances of having theloan approved.Your credit behaviourBeing very aware of his responsibilities,Vusi has always been good at payinghis accounts on time and using creditwisely. He therefore has a good creditrating.The better your credit behaviour, the higheryour chances of being approved for newcredit. Just like Vusi, your willingness to repayoutstanding credit affects credit providers’decision to lend you money. They can seeyour payment history and credit behaviouron previous loans by looking at your creditprofile, which is kept by a credit bureau.Having a record as a responsibleborrower, the credit providers know itwon’t be a big risk to give Vusi a loan.However, if Vusi was someone whonever worried about paying bills on timeand ignored outstanding accounts,there would’ve been a risk that he maynot repay the credit provider as agreed.Only when credit providers are comfortablethat a credit applicant can pay back the loanor facilities as per the agreement, will theymake a credit offer.
How to apply for credit 23
How to improve yourchances of approvalThere are 2 things you can do to improve yourchances of credit approval. Firstly, make sureyou have a good credit rating and secondly,ensure you’ll be able to afford the credit youapply for.Dreaming of his renovated house longbefore applying for a loan, Vusi lookedat his credit rating to make sure he’sgood for credit. Having a good creditrating will help to get his applicationapproved and will also get him the bestrates.Your credit rating24 good for credit shows how you manage your credit andhow you pay your debts. It’s almost likea financial CV that gives credit providersinformation on how well you’ve been, andcurrently are, paying your loans is calculated by looking at your past andcurrent credit behaviour. It’s based onyour credit report, which is available atcredit bureaus
These are widely known to affect yourcredit rating:Your repayment historyThe easiest way to maintain a good creditscore is to pay all your instalments on timeand in full every month. This proves that youare trustworthy and willing to pay off yourdebt as agreed with the credit provider.Missing payments or paying less than theminimum amount will have a negative effecton your credit rating. It also remains visible onyour credit report even after you eventuallymanage to pay your loan off in full.Your outstanding credit balanceCredit providers look at the total amount youowe on all your loans. This amount is calledthe outstanding balance. This is to see howmuch you’ve already repaid and how oftenyou use credit.tipThe length of your credit historyThe longer your credit history, the moreinformation is available about you, and thebetter the picture of your long-term creditbehaviour.The types of credit you haveUsing a variety of credit options can showthat you’re able to manage different types ofcredit.For example: If you have a personal loan andstore accounts, and you repay them on time,it confirms your ability and commitment topay the required amounts for a specific term.New credit agreements you’ve recentlytaken upDon’t open too many new credit accountsat the same time, as this could suggest thatyou’re in financial trouble and relying on creditto survive.Using revolving credit such as credit cardsand store accounts measures how easy it isfor you to manage your budget on a monthlybasis, as the repayment amounts for theseaccounts vary according to your monthlyspending.If you have revolving credit such as credit cards, keep your balances low andmanageable, and set a limit that you can’t exceed. This shows that you’re in controland using the credit available to you wisely.How to apply for credit 25
How to improve yourchances of approvalYour affordabilityCredit providers do affordability calculationsto see how much money you have left afteryou’ve paid all your financial commitmentsand deducted your living expenses.You can improve your affordability when youmanage your income properly and reduceyour expenses. Remember, you must alwaysbe honest about your expenses.26 good for credit
Managing your incomeYou should know exactly how much you earnevery month. The golden rule for managingyour monthly income is to never spendmore than you earn. If you apply for credit,your income should be enough to cover allyour financial obligations and monthly livingexpenses.When Vusi checked his affordability, helisted his income and all his expensesin a budget. Wanting the best loan hecan afford, he was honest about allhis expen
Emily is a fashion designer. She’s been working for a few years and feels confident that she can start her own side business. Before she takes this big step, her bookkeeping skills will need some improvement. She wants to be just as sharp as her design pencils. In her free time Emi
Jan 30, 2017 · Capitec: A wolf in sheep’s clothing Based on our research and due diligence, we believe that Capitec is a loan shark with massively understated defaults masquerading as a community microfinance provider. We believe that the South African Reserve Bank & Minister of F
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