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What Is an Incidental Credit Agreement in South Africa

Unfortunately, in South Africa, too many people with too little money have received too much credit. This ultimately leads to over-indebtedness, which leads to an endless circle of frustration for the consumer who can never repay their debts. [6] The new credit calculation structure will work better for larger loan advances over R8,000. The cost of borrowing for contracts under R1,000 is comparable to the thirty per cent per month calculated without interest limit on small loans, with the vast majority of microcredit borrowers coming from low-income groups. The poorest households bear the heaviest debt service burden. As a result, low-income individuals and communities who borrow small amounts are likely to continue to suffer from the same devastating socio-economic hardships mentioned above, which contribute to maintaining poverty. “. The right starting point is to identify the type of transactions considered in subparagraph (a). They are of two types. The first is the supply of goods or services at the request of the consumer and either the postponement of the obligation to pay the price or the regular payment of part of the amount.

The second is the payment of the sums by the creditor either to the consumer or to third parties at the request of the consumer, when the obligation to repay is deferred or is the subject of regular payment of part of the amount. The first describes the position well with debit cards or accounts and the second the position with credit cards. In the case of a Storecard, the customer can buy goods up to a certain limit, the payment is postponed to the end of the month and invoiced to the customer monthly. A fee may be charged for the right to use the card, and if the full balance is not paid, monthly interest will be charged on the shortfall. The customer decides on the amount he pays each month, subject to the payment of a fixed minimum amount such as 10% of the amount due. With a credit card, the situation is similar, except that the card provider pays amounts to the people from whom the cardholder purchases goods or services, and can also withdraw money from the cardholder. The repayment is deferred and the monthly payment entails the invoicing of interest if the full amount is not paid, as the customer is free to do subject to a minimum payment. In some cases, a fee will be charged for the right to use the card. This is all part of the agreement under which the card is issued. If an agreement (or invoice) remained silent on the collection of interest on an overdue account, the agreement would not fall within the definition of ancillary credit and the creditor would have the right to charge interest at a rate of 3.5% above the reverse repurchase agreement rate as defined in section 1(2)(a) of the Prescribed Interest Rate Act 55 of 1975. Ancillary credit agreements are concluded where goods or services are made available to a consumer for a certain period of time and royalties or interest are charged only if payment is not made within an agreed period.

Examples of this are when such an additional loan agreement is concluded, is in § 5 para. 2 defined as follows: For example, if one were to take a supplier of goods or services who has the usual practice of allowing his customers to pay their account 30 days after the settlement date. Such a deferral of payment is not intended to grant interest or deferred payment charges to such a supplier, but merely to facilitate economic comfort. However, one of the challenges that such a provider faces in such a payment deferral concerns customers who exceed the payment terms. As a result, some of these suppliers will use one or both “carrot and stick” motivational approaches to ensure payment on time – the stick charges interest on overdue accounts and the carrot gives an “early settlement discount” on the purchase price if the customer pays before the due date. These are the types of transactions that should fall under the definition of ancillary credit agreements. Article 89 lists a number of credit agreements that are illegal, including the essential role of credit in the economy, which will be explained in August 2004 in the policy framework of the Ministry of Trade and Industry: the consumer can decide at any time to return the goods that are the subject of the credit agreement, whether the consumer is in default or not. .