As the cost of living continues to rise, you may be tempted to take out a personal loan. Maybe you want to renovate your home or make some changes before the chill of winter sets in. Whatever your reason, make sure that you know what you are getting into.

Mandla recently had a nasty experience with a company based in Port Elizabeth called Halifax Loans and ended up losing money to the tune of R9 980. Unfortunately, it turned out to be a scam and instead of receiving a loan, he was fleeced.

Mandla had applied for a loan of R160 000. “I was asked to pay R3 450 to their attorney and I did that. Later I was asked to pay R6 530 transfer fees and I did that. Now I have been asked to pay R10 200 as taxation fees. Is this a scam or the way things happen?” he asks. At this point, Mandla asked the consultant he was dealing with to email him the terms and conditions of the loan as well as a copy of the loan agreement, but this never arrived.

The National Credit Regulator confirmed that Halifax Loans is not and has never been registered with them as a credit provider. Under the National Credit Act (NCA), a credit provider is required to be registered with the NCR. In addition, a credit provider is not allowed to charge you for legal costs or taxation costs under a credit agreement. “Halifax (if it is indeed in the business of granting credit), is not following the provisions of the NCA when it comes to costs of credit based on the information provided by Mandla,” says Nthupang Magolego, manager for investigations and enforcement at the NCR.

Two options for recourse

Mandla has two options for recourse. If he actually received a credit loan from Halifax Loans, then the company is bound by the provisions of the NCA and the case can be investigated by the NCR. “Depending on the outcome of the investigation, Mandla may be refunded the money that was paid over to Halifax,” Magolego says. However, if Mandla simply made payments to Halifax without receiving any credit or personal loan, then it would be classified as a scam and will have to be reported to the police as a matter for criminal investigation.

Kevin Hurwitz, the chief executive of Wonga.com, which specialises in personal loans, says there has been a plethora of personal loan scams in the last six months. In January this year, Wonga became aware of scammers purporting to be representing Wonga and offering consumers fake loans with unrealistic interest rates. “Typically, once the consumer contacts the scammer, they are asked to provide their personal information and deposit various amounts of money into different private bank accounts. This continues with repeated requests for advance fees and the victim never receives the loan funds,” he says.

Hurwitz confirms that Wonga does not offer business loans and the only way to apply for a real Wonga loan is via the Wonga.com website – never by email or SMS. In addition, Wonga offers a maximum loan of R2 500 for first-time customers. He adds that Wonga will never request any payment upfront for a loan. “The fees we charge are all in line with the NCA and are payable on the customer’s due date. These fees are clearly shown on the home page, along with the total cost of the loan, before a customer signs up for their loan,” he explains.

The ins and outs of a personal loan

Before you sign on the dotted line, check the following:

• Credit record: Because a personal loan is unsecured, you will end up paying a higher interest rate than you would, for example, on your home loan where your property is the security. If you maintain a good credit record, you stand an improved chance of getting a lower personal loan interest rate, which means you will pay less than someone with a poor credit record.
• Interest rate: As per the National Credit Act (NCA), the maximum interest rate that you can be charged on any credit agreement entered into after June 1, 2007, is regulated. The maximum interest rates for different credit agreements are calculated using the repo rate, set by the South African Reserve Bank. The repo rate is currently 5.5%. The formula prescribed in the NCA regulations for the maximum interest rate on personal loans is (RR x 2.2) + 20% or (5.5 x 2.2) + 20%, which works out to 32.1% a year.
• Shop around: Don’t just jump at the first personal loan you are offered. Check out the interest rates offered to you by different financial institutions. Your own bank is likely to offer you the most attractive interest rate, simply because you already have a financial history with them and they know how you manage your money. In addition to interest rates make sure you compare other charges as well, such as annual fees.
• Honesty is the best policy: In terms of the NCA, creditors have to carry out an affordability assessment before they grant you credit. The onus is on you to be absolutely honest about your expenses and income. Although it may seem tempting to fudge the figures so that you can get the money, you will end up regretting it if you can no longer afford to pay your debt later down the line. You won’t be able to plead reckless lending if you deliberately supply false information.
• Payment terms: Find out the payment terms are and don’t be shy to ask credit providers for several different scenarios. The longer the term is, the more interest you will pay. Check if your repayment will escalate in line with interest rates or if you can obtain a fixed repayment figure. Also check if there are any penalties or settlement fees payable if you settle the loan early.

This article first appeared in City Press.