The real cost of taking out a R10,000 loan

National Debt Advisors has cautioned consumers against credit buying, especially over the festive season.

“South Africans, like the rest of the world, are tired and drained after another hard year of the pandemic and its consequences. One can understand the human need to buy something which will either bring some joy to oneself or a loved one.

“The problem arises when consumers, who have access to credit, use it rashly or without a complete understanding of its full costs, payback terms and conditions,” said Sebastien Alexanderson, CEO of National Debt Advisors.

NDA did a quick calculation to show consumers what the real cost of their spending might be, should they be using credit to fund purchases.

Considering varying interest rates and repayment terms, it is clear that there is no real day-saving when using credit for purchases, it said.

Alexanderson noted that a television priced at R5,000 “cash”, may eventually end up costing nearly double that price when paid for via a personal loan.

“South Africans are notorious for being poor savers. This has undoubtedly been exacerbated by the pandemic. However, it makes sense to rather save R500 monthly over a period of 10 months to be able to afford that same television, than accessing credit and possibly paying more than double for your purchase.”

Alexanderson said that not being able to keep up the instalments on your credit agreement, can see your credit record negatively affected and can lead to harassment by debt collectors and even legal action by creditors.

Alexanderson shared his top practical financial tips:

• Decide in advance how much you can spend, and stick to that amount when shopping days come around.
• Work backwards from this amount. Make a list of what you wish to buy for holiday gifts and determine how much you can spend. Considering the global impact of the pandemic, family and friends will understand if you scale down on gifts.
• Look around for essential items (like food and toiletries) that you can save money on, especially when buying in bulk. Add it to your list and include it in your budget.
• On the day, if you add a purchase/top-up amount to your list – make sure that something comes off your list. Do your best to stick to your plan and your budget.
• Avoid impulse buys of items not on your list.
• Start checking prices for identified products ahead of time so that you are sure that you are really getting a bargain when Black Friday comes around.
• Start looking for stores and online shopping platforms that use the rewards system of your debit/ credit/ store cards.
• Be vigilant for fraud and online scams.
• When buying on your credit card or using funds from an overdraft or personal loan, take the interest rate and repayment amounts into account. Weigh it up against the “saving” you are getting on an item.

“Times are tough and the struggle is real. Undoubtedly, every rand saved helps – but be careful not to succumb to the retail advertising hype and madness that can leave you spending money you don’t have,” said Alexanderson.

Read: Salaries to remain under pressure in South Africa, economists warn