Although the NCA protects you to some extent from exploitation, many conditions that are camouflaged in the fine print of a loan agreement could come back to haunt you.
In terms of the Act, you must be informed in clear language of all the issues that affect your debt. This puts the onus on you to read all the documents before you sign anything. And you must understand the implications of what you are signing.
Nowadays, most businesses that sell goods on credit are more akin to financial services companies than traditional retailers. The financial products that are sold around the product are where the profits lie for the retailer. And the consequence is that you could pay 10 times more for an item than you would have paid if you had used cash. The retailer will:
· Either earn interest on the loan itself or in effect receive a kickback or commission from the financial institution that provides the credit.
· Earn commission on the life assurance it will insist you take out to cover the debt. But remember that you cannot be forced to purchase assurance from the retailer or from a company of the retailer’s choice. Credit life assurance is the biggest money-spinner in the life assurance industry. Life assurance bought directly from a life assurer is likely to be far cheaper. Here are a few rules to avoid needless payments:
* Never take out credit life assurance for a period longer than the period over which you must repay the debt.
* Never take out credit life assurance for an amount greater than the debt.
* Preferably take out credit life assurance where the value of the benefit declines in tandem with the outstanding debt.
* Always insist on getting quotes via a financial adviser who is independent of the retailer.
* Remember that the commission paid on credit life assurance is calculated by multiplying the premium and the term of the assurance by a certain factor. So the bigger the premium and the longer you pay, the greater the commission.
* Always pay the premiums on the life assurance separately from the principal debt on the product. Most times the premium is added to the principal debt, and you pay interest on the larger debt.
· Earn a commission of up to 22.5 percent on short-term insurance. You will be required to take out short-term insurance, but again you can choose the product provider. And again, beware of premiums being added to the principal debt, which will result in your interest bill climbing.
· Make a profit by selling you extended guarantees and service plans. In many cases, you do not need an extended guarantee.
· Apply other charges, such as administration and penalty charges – even if you pay back the debt early.