“You QUALIFY for a R100 000 loan”. “CONGRATULATIONS, your loan has been approved!”

    Isn’t it wild that people take up credit daily and do not know how lenders make their money? They make it sound like a privilege to borrow their money and yet they do not really know the depth of our financial position or what our goals and aspirations are.

    All the lenders want is for you to stick to the terms of the pre-agreement statement and quotation. It sounds like they don’t care, right? Not really.

    The market assumes that all participants have full knowledge of what they are doing before purchasing or making a financial decision, which unfortunately is not the case when it comes to financial education.

    So, what is a pre-agreement statement and quotation?

    I came across a publication by Bank Seta called “Understanding the pre-agreement statement and quotation”.

    It is a three-page document from Bank Seta’s consumer education material and it is, in my opinion, solid gold. The introduction of the publication states, “Before committing to a new credit agreement, you must know and understand fully what you are signing yourself up for.

    Before you put pen to paper, you need to understand and know how to read a pre-agreement statement and quotation.”

    When a loan that you have applied for has been approved, it is required by law that the lender draws up and explains a pre-agreement statement and quotation which states the details of the transaction. The National Credit Act stipulates critical information that must be included in the contract for us to make sound decisions. (You will find this information in the Bank Seta document.)

    The pre-agreement statement and quotation of any loan is a must-read before committing to any loan so that you fully understand the contract, what you are required to do, and the consequences of not doing what is stipulated in the contract. Most importantly, it tells you exactly what the costs and fees relating to the loan are. 

    Now, in South Africa, we have maximum prescribed interest rates and fees that can be found in the Government Gazette 39379. The limitations are in place to protect consumers from paying exorbitant rates and fees. It is vital that you check the rates and fees in the gazette against the rates and fees on your pre-agreement statement and quotation. Also, remember to always ask for a rate reduction and discount on fees to minimize the cost of the loan. 

    BEFORE you sign the agreement, ask for an amortisation schedule for your loan.

    What is Amortisation? 

    Amortisation is the process of reducing or paying off debt by making regular payments over a period of time. The schedule will show what your instalments are, e.g. on a monthly basis, and it will also show you how that monthly payment is apportioned between the actual repayment of the loan (capital amount) and interest payments.

    You will then see, on the percentage capital outstanding, why the balance reduces by a small margin and not by the instalment amount. It is important to go through this step of the process because it is probably during this exercise that you will be discouraged to take up unnecessary debt.

    If you know how the interest repayments are calculated, then it will not take you long to make a decision. If, however, you do not know how interest is calculated then you are not ready to sign yet.

    Take some time to first understand interest calculations before signing the agreement. The last article of this details interest rate calculations.

    Once you fully understand the contents of the agreement, take a moment to reflect whether you need the loan or not; are you going to use the money to invest in yourself and build wealth, have you determined whether it is good debt or bad debt, and if acquiring the loan will not place you in a tighter financial position.

    Check out the series on Loan Interest Calculations on my YouTube channel, The Power is in Your Pocket.

    The link related to this article is: https://youtu.be/qY5jDFIFkRU 


    About the Author

    Makgaje Setlalentoa aka “Makgaje The Money Buff” created a YouTube channel to feed the desire to improve her viewer’s quality of life through sharing her knowledge and experience in finance. Her educational background; experience in Private Banking inspired her deep passion for personal development, wealth creation, and the continuous development of the African continent. 

    She majored in Statistics, Economics, and; Money and Banking in her undergraduate studies and also completed a Honours in Economics. She was a Private Banker for the last four years she worked in corporate and, in 2015, was awarded Private Banker of the Year in the Johannesburg Area, South Africa. The primary goal of private banking is to create, maintain and preserve wealth. Everybody deserves this knowledge from the first Rand, Dollar, etc earned. Her objective is to provide unbiased financial knowledge to empower consumers to make better financial decisions.



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