By Angelique Ruzicka, editor, Justmoney.co.za
Consumers are being ripped off, charged unnecessary costs and sold products that they don’t need when they apply for personal short term loans through a number of newly established players in the online space warns Wonga CEO, Kevin Hurwitz.
He adds that a sure-fire way of not being ripped off is for consumers to do their homework. “Unfortunately, not all the companies offering these loans are responsible lenders and consumers are encouraged to shop around, in order to select the option best suited to their situation and needs, advises Hurwitz.
“At the very least, we would suggest doing some basic research into the company first before signing up or agreeing to anything,” says Hurwitz.
Before you apply for a loan through a previously unheard of provider, follow these eight tips to ensure you don’t get ripped off:
1. Know the total cost of the loan
Find out how much you will need to repay, including any fees and interest. “In addition to this, also make sure you will be able to afford to repay that amount. It’s important to make sure the company offering the loan shows you exactly what fees are being charged so you don’t get a nasty surprise at the end,” says Hurwitz.
2. Find out how much you will be paying in insurance
Some companies include mandatory credit life insurance on their short term loans and the cost of this is included in the total cost of the loan. On a longer term loan, such as a home-loan for example, this can be a useful thing to have so that your family isn’t held liable for your debt in the event of your death, however there are many companies that do not insist on this.
“We don’t offer credit life insurance on our Wonga loans because we don’t believe it is ethical to charge this on a short term loan,” says Hurwitz.
3. Avoid paying an upfront fee
There are many websites that offer the service of comparing various loans on offer and these can be useful when weighing up the pros and cons of various options. These websites are called affiliates or loan aggregators and the norm is for the credit providers to pay the affiliate for any leads that arise from the site.
However, there are some websites that charge you for this service. These fees, which can range between R300 and R400, are referred to as loan arrangement, application, insurance or even legal fees.
Hurwitz believes that responsible, legitimate credit providers which offer personal loans don’t charge a fee upfront. “There is absolutely no reason for any company to charge the customer an upfront fee just to find them a loan.”
One way to avoid being charged an upfront fee is to make sure that you keep your bank account details safe until you have decided on the specific loan you want to apply for, points out Hurwitz. “Once you know which lender you would like to take the loan out with, go onto their secure site and apply for you loan there,” he adds.
4. Check the website’s security
You can check that the website is secure by verifying the address has an "s" in "https://" at the beginning of the URL, or alternatively a closed padlock located in the URL bar, indicating the website is protected by a trusted source.
5. Read the small print
Check the small print before applying for a loan. “It is vital to make sure you understand all the terms and conditions of the loan before you sign the agreement,” explained Hurwitz.
Small print is called ‘small print’ for a reason as often companies like to bury information like hidden fees. “Taking on debt is a serious commitment, and consumers should know exactly what they are agreeing to before they sign,” says Hurwitz.
6. Make sure you can afford the loan
It is important to be absolutely sure that you will be able to repay it on time because as soon as you start to default you could be penalised, and in some cases, very heavily. It means that you could end up in a worse situation than you were before prior to the loan.
The default will also reflect on your credit record and will remain there until you have repaid the loan in full. “Responsible lenders will always conduct a credit check when assessing your credit-worthiness and any defaults on your credit record will mean that lenders will see you as more of a credit risk. So, any future loan applications will be less likely to be approved,” says Hurwitz.
7. Don’t borrow more than what you need
Don’t fall into the trap of borrowing more – even if the company is willing to give you more. “Be careful not to borrow more than you need or for a longer time than you need it. Ideally, you want to keep the loan as short-term and as small as possible, in order to keep the total costs down,” advises Hurwitz.
8. Check that they can operate legally
It’s vital to ensure that the company is registered with the National Credit Regulator. Hurwitz recommends that lenders phone the NCR or peruse its website to ensure that the company is listed because companies can fraudulently copy the NCR’s logo and use it on their pamphlets and websites.
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. Alternatively, if you are struggling with debt then you may want to consider consolidating
your loans or applying for debt counselling