It’s not only you who needs to be wise about borrowing money – credit providers also need to be responsible about lending.
So what’s “responsible lending”?
Responsible lending involves only providing credit to people who can afford to pay it back. This is why credit providers need to ask you about your credit history and your salary in order to find out whether you’ve been responsible with debt in the past, and if you can afford your repayments.
On the other hand, a credit agreement where the customer can’t reasonably afford to repay their monthly obligation is called reckless lending. This can lead to customers becoming over-indebted – this means that they are unable to pay their debts with the amount of money they have coming in.
Credit providers being responsible
Credit providers have a duty – to their customers and to society as a whole – to lend money responsibly. That means trying their best to refuse credit to people who can’t afford it.
Registered credit providers have to comply with the National Credit Act and if a credit provider doesn’t follow regulations it can lose its registered status. The National Credit Regulator (NCR) is the government institution whose objective is to make sure credit providers lend money in a responsible way and ensure registered credit providers act lawfully.
If your agreement with a registered credit provider is reckless, the agreement can be suspended or altered in a way that means your obligations no longer apply. Only a court tribunal can make this decision though – not you and not your credit provider. However, this is one of the reasons why it is safer to use a registered credit provider – you might not get that kind of protection from an informal lender.
Remember that even with responsible lending it’s possible to get into debt problems. So, make sure you don’t bite off more debt than you can chew – keep credit for important purchases and don’t overuse your credit card for unnecessary luxuries you can’t afford. Click here to #LearnSomethingNew about managing debt responsibly.