The majority of employed South Africans have some sort of debt. Most of us have a credit card and a store card or two, and plenty have personal loans on top of these. There are many middle class South Africans that have a few types of short term debts coupled with either a financed home or vehicle. Debt is needed for those purchases or investments that cannot be funded with cash.

Purchasing with debt is common practice the world over. A big issue in South Africa is debt addiction and debt reliance. More than half of the credit-active consumers in South Africa are in arrears on their accounts. This means that consumers are taking out more debt than they can afford to repay and are living beyond their means. This is due to poor financial literacy levels, easy access to credit and increasing living costs.

What Do Credit Providers Look At When You Apply For A Loan?

In order to take out a loan, the credit provider is meant to look at certain aspects relating to your financial position.

Credit providers will assess the following:

• Current debt repayment behaviour
• Credit history
• Credit score
• Affordability
• Net income
• Household expenses
• Consumer risk profile

The credit provider will draw your credit report and use salary slips and bank statements to verify your financial position.

Why Would Some Credit Providers Grant Me A Loan But Not Others?

There are different levels of credit providers in South Africa. Each type of credit provider has a different purpose and risk appetite. The big 5 banks give out loans as well as take in deposits from clients. The big banks are usually the strictest, meaning they will not lend to someone that is very risky. This usually results in the big banks having lower interest rates as they know they are likely to recoup their money.

Credit providers, such as Bayport and Direct Axis, offer larger personal loans to clients. Due to the size and competitive interest rate, they are also strict on the criteria and look at higher credit scores. These credit providers have variable interest rates depending on a clients risk profile.

Smaller, short-term loan providers and payday lenders are the easiest lenders to get loans from. They take on more risk and subsequently charge the maximum interest rates and fees.

Why Would A Credit Provider Not Give Me A Loan?

Affordability:

There are a number of reasons why you could be refused a loan. When credit providers do an assessment of your financial position, you may lack affordability. This means that they have calculated that you would not be able to afford the new loan. They have a look at your income, expenses and other debts to assess this.

Credit Score:

Another reason may be your low credit score or bad credit history. Your credit score is calculated using a number of variable factors. Mainly, the credit bureaus look at your payment history, debt exposure and debt usage. If you have missed many repayments and have any defaults or judgments on your account, your score will be low. If you pay your debts on time and don’t have a lot of loans, your score will tend be higher.

Blacklisted:

Although there is no such thing as the black list, being blacklisted is a term used when your are unable to get any more credit. This usually happens when your credit score is really low and there is a lot of adverse information on it. By having legal action and other defaults to your name, you are likely to be refused new credit.

What Can I Do To Get A Loan?

If you have been denied a loan by a number of credit providers already, here’s what you need to do:

Draw your credit report from one of the bureaus (TIP: they give you one free credit report every year). You can use Transunion, Experian, XDS or Compuscan. Have a look to see if there is any old debt or unusual items being reported. Your older debts may actually be prescribed, which you could query with the credit provider. Make sure that all of the information is correct on your credit report. Query with the bureau as well as the credit provider to get negative information removed.

If you have debt in arrears you need to catch up on missed payment. If you miss too many payments, other credit providers are not going to lend to you as they think you may miss their repayments. Try to settle your judgments and defaults early.

Once your credit report has been cleaned up and is up to date, you will need to continue paying everything on time for a few months. If you don’t understand your credit report or have too much debt to sort out, speak to a debt counsellor. A debt counsellor will give you expert advice and assist you with your debt problems.

A debt counsellor can even offer you solutions to help you manage your debts, consolidate payments and make them more affordable for you.