Around 40% of the credit provided by the country's top ten credit providers appears to be reckless according to the recently released Reckless Lending Indicator, developed by debt counselling firm DebtSafe.
The analysed data of the top 10 credit providers, based on agreements that appear to be reckless, suggests that these credit providers are playing a major role in the reckless lending environment in South Africa.
On account of the large numbers of stressed South African consumers seeking inappropriate loans, financial comparison website, Fincheck.co.za now provides a number of free services to support consumers with transparency and quality information to make better financial decisions.
Says Michael Bowren, CEO of Fincheck.co.za, “Daily we are approached by indebted South Africans with four or more outstanding loans. They come to our site seeking additional loans and apply at numerous financial institutions hoping that one will accept them. This is a clear sign of financial stress; the financial companies notice this and it counts against the applicant when the bank performs an affordability test.
“Only 18% of Fincheck users actually qualify for personal finance. The remainder of the applicants fail based one or more of the following reasons: they are over indebted and do not have enough disposable income, do not pass affordability tests, are too young or old or do not yet have a credit score. Many users are paying around 70% of their income towards repayment of loans. We find that most of our users have a 'just below' good credit score.”
Fincheck.co.za allocates more than 1000 finance applications a day offering a deep understanding of the current financial climate. “We developed MyFincheck because we wanted to ensure responsible loan allocations. The tool allows you to understand your credit health better and provides you with actionable information to improve it. It also indicates outstanding accounts - this is the type of data that the banks and lenders access when you apply for finance. If it’s incorrect, you will be able to prompt the credit bureaus to update your information.”
The site offers a free online credit score and recommendations on how you can improve your score.
It also offers numerous other free services including a loan calculator to give you a better idea of your loan repayment commitment before actually applying for a personal loan. The savings goal calculator helps you to determine how much you could save monthly, after you have paid all your expenses, providing you with a financial buffer in case of emergencies or other financial decisions to avoid a debt cycle. The debt-to-income ratio calculator indicates how healthy your finances are after debt commitments.
Bowren continues, “The real value of these tools is that MyFincheck will suggest relevant product offerings based on your live score. So instead of applying for several loans (which is viewed negatively) Fincheck will connect you with a National Credit Regulator registered business most likely to accept your application. Providers include over 17 banks, lenders and insurance companies in South Africa.
“In fact, MyFincheck will even indicate the percentage probability of being accepted by a company. For example your profile will indicate that you have a 90% chance of being accepted with Company A and a 70% chance of being accepted with Company B. The interest rate you will be charged as well as the total loan amount will also be indicated in certain cases.”
In this way, consumers will be able to easily connect with the companies that are most likely to accept the applications for loans, life insurance, funeral policies, debt counselling, vehicle insurance and business finance saving them time and frustration. The consumer completes just one application form after which, the consumer will be presented with a comparison page listing all the companies they are most likely to get accepted by. This comparison page will present live information on your application. You then simply click apply on the bank, lender or insurance company you prefer.
Bowren continues, “We still have a long way to go in our quest to move South Africans away from loan sharks and ponzi schemes. We want to help them move from being net borrowers to net investors. Fortunately we are seeing a willingness of consumers to shop around, educate themselves on offerings and improve their financial situations. We also see that most lenders do have tight affordability measures in place and the NCR does monitor them to see that they follow the rules, but of course each business tries to maximise their returns. Additionally, the affordability checks rely on the honesty of the client and their credit score is just an indication of the likelihood of them repaying a loan. These aren’t sufficiently good indicators to determine whether a person should be provided the debt.”