Credit life payouts and payment holidays are on the cards. But it will only be for those who are directly impacted by the lockdown, and will come with Ts and Cs.
While we are expecting more announcements from the banks, they have all indicated that they will be offering payment holidays to those who are unable to meet their commitments due to the lockdown. This will most likely be done on a case-by-case basis.
All banks have confirmed that credit insurance polices can be used for repayment relief. Credit insurance policies have a “loss of income” provision which kicks in if your employer has forced you to take unpaid leave or is unable to pay you due to the lockdown. It also covers you if you contract the Covid-19 and are unable to work.
Under the loss-of-income provision and retrenchment provision, your debt repayments could be covered for up to 12 months or until you earn an income again – whichever is shorter.
Unfortunately, many people opted out of credit insurance, especially when it came to their mortgages or car finance. Lee Bromfield of FNB Life says that only about 25% of their debtors book has credit insurance. However, lenders focusing on short-term loans such as African Bank, Capitec and Bayport tend to have a higher percentage of credit insurance policies as this is often a compulsory insurance. Standard Bank has also confirmed that credit insurance was compulsory on home loans for people earning less than R25 000 a month.
Credit providers will each have their own specific cover, so you need to speak to your credit provider for details. In some cases, the loss-of-income provision would only apply to loans or insurance taken out post August 2017 when new regulations were issued by government requiring credit insurance to provide this protection. However, Nedbank and Standard Bank have announced that they will extend the cover retrospectively to those who took out the cover prior to 2017. African Bank’s cover also extends to loans taken prior to 2017.
Debt repayment holiday
At this stage Standard Bank is the only bank to offer a blanket payment holiday to small businesses with a turnover of less than R20 million. The applies to all loans taken by the business including overdrafts, credit cards, car finance and mortgages. This is an automatic payment holiday commencing on 1 April 2020 and running through to the end of June 2020. Businesses that do not want to take the payment holiday will need to inform the bank. In addition, all student customers still studying full time with a Standard Bank Student Loan will receive a payment holiday over the same period at 0% interest and with zero fees.
The banks have all announced debt relief options to customers who cannot afford to meet their repayments, however you need to specifically request this option – it is not automatic.
The banks have notified customers that debt payments can be deferred or reduced for three months. However, in all cases, interest, fees and any insurance premiums will simply be added to the principal debt. So, while this may provide cashflow relief to those who are genuinely affected by income loss due to the lockdown, it should be avoided if at all possible.
To provide an example, if you have a mortgage of R650 000 over 20 years, if you maintained your bond repayment of R6 234, after three months the value of your home loan would have dropped to R647 326. If you took the payment holiday of three months your outstanding home loan value would have increased to R666 165. So, you would either extend the term of your loan or increase your repayments.
Most of the banks are capitalising the interest on the existing loan, however FNB has taken a different approach. They are effectively issuing a new loan, to cover the missed payments, at an interest rate of prime and no fees. This means that you would pay off the loan separately to your existing credit agreements. While this option may not make sense for your home loan if you have a rate below prime, it will provide some interest relief for more expensive debt such as car finance and personal loans.
It is also important to note that banks are currently only offering this to customers who were in good standing prior to the lockdown, so this is not available to customers who were already missing payments.
If you do select the payment holiday, this will not affect your credit score as it will not be viewed as a default. Before you sign up for a payment holiday, speak to your credit provider to make sure you understand the implications, and that you are not just kicking the debt can down the road.
What is not clear yet is how people under debt review will be treated. While debt counsellors wait for further information from the banks, Paul Slot of the Debt Counsellors Association of South Africa says in the debt review industry there is a standard “change of circumstance practice” where the debt counsellor can request approval for lower payment from credit providers.
“In this process the debt counsellor will obtain proof of loss of income, redo the consumer’s budget and then motivate for a reduction in payment for a month or two. Approval of this request is at the credit provider’s discretion. If not approved, the credit provider can proceed with legal steps.”
Benay Sager, Chief Operating Officer at DebtBusters says before opting for a payment holiday you need to understand the terms and conditions.
“A payment holiday is very good news for someone who is facing a short-term cash crunch as a result of the lockdown, but it’s possible that the interest will keep running, even though payments are paused. This means that the total payment at the end of the loan term may be more than the original total. This doesn’t mean it’s an option that shouldn’t be considered if you’re facing a cash crunch, as long as you’re aware you may be paying back a bit more.”
He says that whether a leniency policy is in place or not, anyone who is struggling to make repayments should contact the lender immediately and try to agree a repayment plan. If they are not able to negotiate affordable repayment terms themselves or owe too much to too many lenders, they should contact a reputable debt counsellor.
This article first appeared in City Press.
Hi i have a personal loan with bayport and would like my instalment reduced from 7300 yo 4000rand and i have reversed 2payments and willing to.pay 4000rand this month,i was not aware about the relief fund till now,i aproach a debt mediation company to assist me but they taking long and i dont want to be a bad payer ,will i be allowed to make a payment of atleast 4000 towards my personal loan even though am late?
I recommend you contact Bayport as soon as possible and ask them for assistance
Hi
I got FNB credit card since 2014 but its been up todate until affected by this Covid19, unfortunately the FNB branch is close nearby.
How can i be help to get the life insurance cover claim . Im really affected and cant afford to par my credit card at the moment.
Regards
You should be able to make the claim via the FNB Banking App
Hi, I am under debt review, is there anyway I can get my installment reduced from 2000 to 1000 or have a payment holiday?
This would only be an option if your income has reduced. Speak to your debt counselor about the options available
Do I qualify for credit relieve of a few months with my car premium, without it reflecting bad on my credit history.
depends on what your bank is offering. In all cases payment holidays are only available to individuals in good standing- ie: whose payments were up to date before lock down. If you take the payment holiday it will not reflect negatively on your credit record
Hi. I’ve had debt protection since 2012. I tried to make a claim for loss of income from FNB. They told me I’m not provisioned for it as I have taken the policy before 2017. Other banks have extended it to their existing clients. Why didn’t FNB. They didn’t even bother to notify me that new regulations are out and that I’m not covered. So disappointing.
I did ask them but got a complicated answer:
FNB Response : Lee Bromfield, CEO of FNB Life
FNB confirms that the loss of income protection provision prior to August 2017 is currently not a regulatory obligation, therefore each provider applies their insurance products differently.
We can confirm that the regulations around added benefits for new policies sold after August 2017 do not take away from the current policy cover.
In addition, the regulations were only based on changes to compulsory credit life policies and not voluntary products.
FNB Life will continue to assess its position on ex-gratia payments on claims in order to extend help to as many customers as possible
Hi im one of the people whos not working because of corona veris i work at zone fitness as group trainer and personal trainer as full time at zone fitness. Know ive got debt to pay and family to take care. I need help please Thank u from Nkosinathi Sinclair fumbeza
Check on the credit insurance options. It does depend on whether you were considered “employed” but many contract workers were considered employed https://city-press.news24.com/Personal-Finance/how-credit-insurance-can-cover-your-debt-20200406.
Look at how you can continue to make some money:
Are there any options to do online classes? I know the gyms are offering online classes but that does require access to good wi-fi.
Do you have clients you can create home exercise programmes for? You can act as their exercise coach so they get off the couch and do some burpies…
It is a good opportunity to start thinking out the box and maybe create a whole new business opportunity…
How can I apply for credit life insurance
Hi Lilian, you can check out http://www.yalu.co.za. Or you can also email your info@yalu.co.za for a call back or call 010 880 0857.
How can i apply for the credit life insurance cover and where.is it available at stores where you bought goods?
Hi John, for personal loans, student loans, revolving loans and credit card credit life insurance, you can check out http://www.yalu.co.za. Or you can also email your info@yalu.co.za for a call back or call 010 880 0857.
Have tried to explain that I won’t be able to earn a salary end April. They insisted on documents. How will I be able to provide documents if the company is closed. And I have been in good standing since. Doesn’t make sense. Standardbank can come and fetch the vehicle
Companies do need to issue letters and also to apply for UIF on behalf of their affected employees. There must be someone at the company you can get hold of?