1. What is a Credit Transaction?
A credit transaction is a transaction whereby the credit grantor (service pro-vider) sells or supplies to a credit receiver (consumer) movable property or services against payment by the credit receiver to the credit grantor of a sum of money. The sum of money is repayable by mutual agreement between the parties to the agreement and must be paid in whole or in part in installments over the period of the credit transaction, i.e. 6 months, 12 months, etc.
2. Advantages and Disadvantages of a Credit Agreement
Advantages:
• The consumer is able to acquire the movable property or services upfront and repay the debt in equal monthly installments.
• The consumer has access to the movable property or services imme-diately and does not have to wait until the full purchase price has been saved prior to acquiring the item in question. This concept is also referred to as “saving down” – the consumer first acquires the article and then “saves” towards it by the repayments thereof.
Disadvantages:
• The consumer ends up paying more for the article as various charges, most notably interest or maximum finance charges, are added to the purchase price.
• While the article is under “hire purchase” agreement, ownership remains with the credit grantor. Ownership of the article only transfers to the consumer upon the debt being fully repaid, thus the reference to “hire purchase”.
• If the consumer defaults on repayments, the credit grantor can repos-sess (take back) the goods without returning the installments that you have paid since the installments were only for using the goods during the period that it was in your possession. If the value is lower than what you
owe, you will be required to pay the difference, or alternatively you could receive the difference if higher.
It is advisable for consumers to take full cognisance of the advantages and disadvantages of buying on credit prior to making a decision as to which way
to go.
3. Consumers’ rights and responsibilities as far as credit agreements
are concerned.
3.1 The credit grantor must explain all important information, i.e. description of the goods, how much you must pay, when and where in a language that you understand.
3.2 Remember, since you don’t actually own the goods until the last payment, you are not allowed to make any alterations to the goods without the credit grantor’s permission.
3.3 If you fail to pay on time, you will also have to pay for any damage that you have caused to the goods.
3.4 The credit grantor is allowed to add credit life insurance to the article, which will pay the remaining debt should you pass away, become disabled, seriously ill or unemployed.
4. Maximum allowable finance charges for Credit Agreements.
The Usury Act sets the maximum allowable finance charges that may be added to a credit transaction. The rate is set at the average prime rate charged by commercial banks in Namibia x 1.6 – at current rates it is 9.25 percent per annum x 1,6 = 14.80% per annum. This means that a credit grantor may not charge in excess of 14.80% per annum in respect of the credit transaction entered into.
5. What to look out for?
5.1 Acquaint yourself with all the terms and conditions of the Credit Agreement.
5.2 Compare quotes from at least three (3) credit grantors for the same type of good before choosing one.
5.3 Cheaper is not always better. Compare the total amount you will pay eventually with the repayment period, e.g. you might choose a longer repayment period, even if you’ll pay a bit more in interest, as there will be less pressure on your monthly income.
5.4 If you can afford to repay the balance faster, then by all means do it. You will save on interest charges.
5.5 If you can no longer afford to repay, the sooner you negotiate with the credit grantor, the more costs you will save.
5.6 If you absolutely cannot afford to continue paying, it is cheaper and also advisable to return the goods to the credit grantor.
Note: If you find during the term of the agreement that you are unable to honour the arrangements reached with the credit grantor, make contact with the credit grantor and negotiate for more affordable repayment options. An option for considera-tion is to extend the term of the credit agreement, which would result in smaller monthly installments. Example: Reduce the installment from N$500 over 12 months to N$333 over 18 months. The disadvantage of this arrangement will be the fact that the total interest that you pay on the credit will increase as interest for a further period of 6 months will be charged to the initial credit agreement.