Many consumers lose thousands of dollars by committing themselves to debts without understanding the problems that can follow
The telephone call comes from a creditor — be it a bank, a loan shark, a car dealership or a furnisher store — announcing that your application for credit has been approved. You feel a flash of excitement: that car, house, bedroom suite or other luxury item can be yours at last! But those who incur debt don’t always realize that they can be starting on a long road of financial insecurities and woes as a result of failing to pay attention to certain details (the ‘small print’) when the financial deal was clinched.
And then there is the thrill of receiving an unexpected call from companies offering you credit you didn’t ask or apply for. This is a trap, and can lead to you drowning in debt without even realizing it.
• Beware of ‘Ts&Cs’
In every financial deal or any form of a loan or agreement in terms of which money will be debited from a consumer’s account, there will always be what creditors often refer to as ‘terms and conditions’ (shortened to Ts&Cs). These terms and conditions are seldom explained, but can often mean extra charges that are deducted — which adds to the debt. These charges are not always clear at the beginning, until one starts to realize how much money they are losing.
• Compare before signing
New York financial advisor Stan Dlamini says that, very often, debtors are so desperate to receive the money that they fail to go through the contract documents carefully. He believes that, when one is approved for credit, the excitement is so overwhelming that consumers fail to sit down and consider the basics, such as comparing interest rates with those offered by other institutions.
• Interest rates can vary
“Different banks have their own different interest rates, and people don’t always calculate the interest they will be paying. It is very important that you compare what you are offered in interest with what you would be charged by other institutions,” advises Stan. It is also important to remember that interest rates are not standard for everyone, but are calculated according to each consumer’s credit record. In other words, the higher the debtor’s credit risk, the higher will be the interest rate on the debt.
“Make sure that you can afford the rates. Shop around before deciding to accept the deal. This can have a major effect on your future financial position and can save you substantial amounts of money,” warns Stan.
Interest rates can range from 11 to 32 percent, depending on the applicant’s ability to repay, and their credit history, so make sure that you know what you will be paying in total.
Here are some things to bear in mind so as to avoid unnecessary shocks that can result from not fully understanding the conditions when you enter into a financial agreement.
1.Club magazine trap
When opening an account, you may be asked if you want to receive a monthly catalog advertising the latest stock. But businesses often don’t explain it is not given for free.
Instead of having this cost added to your account, visit the store or watch the press for the latest available stock.
2. Cell phone contracts
The same applies here. The service provider may ask if you would like to receive an itemized bill showing the number of calls you have made. Beware — cell phone companies can charge extra for this.
When taking out insurance, understand what gets paid and what does not, as companies sometimes fail to inform you about certain restrictions. For example, it occurred recently that companies refused to make two payouts for one person, even though they had been deducting two lots of monthly premiums. Enquire about it at the start, and ask the insurance company to let you have it in writing.
4. Refuse offers of credit
When someone offers you credit you haven’t applied for, it might seem great at the time, but beware of the complications that can arise later. Offers could come pouring in, as a result of your impressive credit record, but accepting them could stain your credit record in the future. Imagine living a good life with manageable debts and a good credit record, and suddenly, due to the desire to live an even higher life, you fall into this trap and end up struggling to make ends meet because of this debt. “That is one trick that most consumers fall for. It is easy to accept such an offer because it is made to you on the basis of you being a good debtor — that on its own is enough to entice one into signing the deal,” says Stan.
5.Buy now, pay later
You have seen ‘specials’ where companies offer you credit that requires you to pay a certain portion in the first few months and then the full amount later. Car dealerships are notorious for offering this kind of deal to entice you into buying a vehicle. Many people have been trapped into accepting a ridiculously low repayment figure, only to be faced with a hefty increase a few months later. “This is where you should use your
common sense. If you are on the lookout for low repayments, you shouldn’t rush into signing up without having read and understood the terms of the deal,” comments Stan. Read the contract carefully, and make sure that all the repayment figures will be fixed and will be adjusted only if there is a change in the inflation rate, nothing else.
Again, don’t let excitement lead you to take the wrong decision. Don’t sign anything that will cost you money, and
if you given vague answers when you enquire about repayments, pull out of
the deal — before its too late.