Getting access to credit can be easier or more challenging, depending on the type of credit you’re applying for. Credit providers often have certain qualifying criteria which individuals must fulfil before they are approved for a loan. For instance, they may need to be above a certain age, be employed, have a form of identification and be able to provide proof of income.
Credit providers mainly want to ensure that applicants will be able to afford to make repayments. Although it doesn’t always happen, credit providers should check that applicants aren’t already over-indebted.
This is why more affordability checks are required to curb consumer debt.
South Africa has 22.5 million credit-active consumers. Research has shown that a significant number of these consumers are struggling to repay their debts. As much as 76% of the average household’s income goes towards paying off various debts.
In accordance with the National Credit Amendment Act, credit providers are required by law to verify a consumer’s income before granting credit.
Credit providers must take practical steps to assess the prospective consumers’ discretionary income. They must do this by requesting the latest three payslips or bank statements showing the latest three salary deposits. They must then confirm debt repayment obligations with the credit bureau.
The aim is to eradicate reckless lending – when a credit provider extends credit to a consumer who can’t afford it.
The Act also makes it mandatory for all credit providers to be registered with the National Credit Regulator (NCR).
When affordability checks are conducted, consumers also have a duty to truthfully disclose their information and to provide authentic documentation. Should a credit provider find that a consumer is over-indebted, they can’t extend further credit to the consumer. If they do, this will be in contravention of the National Credit Act.