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If you are currently under debt review, taking out additional loans can disrupt the process. It is best to avoid any new credit until the process has been completed.
Debt review offers protection from creditors and helps you regain control of your finances. It also provides you with low repayments, which are based on your budget.
Lower interest rates
Debt review combines all of your debt repayments into a single monthly payment and offers legal protection against creditors who wish to take further action against you. During the process, you are also able to improve your credit score as you consistently make payments towards your debt. However, it is important to remember that debt review is only a short-term solution to getting your finances in order.
Taking out additional debt while under debt review can be dangerous for your financial health. Firstly, it will interfere with your goal of achieving a debt-free status. In addition, it may also jeopardize your debt review agreement by putting you at risk of defaulting on loan repayments. It is also against the National Credit Act for individuals to apply for further credit while under debt review.
Lenders are hesitant to offer loans to individuals who are under debt review because they have a heightened chance of defaulting on their repayments. Furthermore, it would be against the National Credit Act for lenders to offer credit to individuals who are under debt review, and they can face legal consequences for doing so.
Restrictions on further credit
Generally, individuals who are under debt review are forbidden from taking on additional credit until they have successfully exited the process with a clearance certificate. This is because the National Credit Act (NCA) stipulates that a person cannot incur more debt until they have settled their existing debt.
As such, if you apply for a loan while under debt review, it is likely that your application will be rejected. This is because the debt counsellor will have already assessed your income and expenses, and determined that you are over-indebted.
Furthermore, if you are under debt review, your creditors cannot pursue legal action against you or repossess any of your assets. This is because your debt counsellor will have negotiated a restructured repayment plan with them, which typically includes reduced instalments https://best-loans.co.za/loans-app-online/finchoice-app/ and interest rates. Consequently, applying for further credit may jeopardise your current arrangement and put you at risk of financial disaster. Moreover, lenders that offer loans to debt review clients risk violating the NCA guidelines and face legal consequences. In addition, obtaining further debt will delay your progress toward financial freedom.
Extends repayment period
Debt review is a process introduced to help over-indebted South Africans manage their debts and achieve financial freedom. It consists of a professional assessment of an individual’s finances and negotiations with creditors to reduce their monthly repayments. This helps individuals manage their debts and meet essential living expenses.
However, the process can also be disruptive to an individual’s lifestyle if it introduces additional credit. It can be difficult to balance the extra debt payments with existing repayments, and it can be a psychological burden on an already struggling individual.
Another concern is that the introduction of new debt can impact an individual’s credit score negatively, potentially reducing their eligibility for future financing options. The National Credit Act stipulates that individuals under debt review cannot incur new debt, and lenders are forbidden from granting loans to people under debt review unless they have successfully exited the process and received a clearance certificate. This legal restriction provides valuable protection for borrowers by shielding them from further financial distress and the risk of blacklisting. In addition, it ensures that creditors cannot seize their assets or pursue legal action against them as long as they adhere to the agreed upon reduced repayment plan.
Legal protection
When you apply for debt review, it restructures your multiple payments into one, affordable monthly repayment that is manageable within your budget. This gives you financial relief, while allowing you to continue to pay off your home loan. As a result, your home and car remain protected from repossession by creditors as long as you adhere to the agreed upon reduction in instalments.
Creditors, debt collectors and loan sharks are prohibited from contacting you as soon as you enter into the debt review process. This ensures that you can focus on paying off your debt, and it protects you from being harassed by these unscrupulous individuals.
Another benefit of debt review is that it provides legal protection against creditors’ actions, safeguarded by the National Credit Act. Joseph’s debt counsellor negotiated with his creditors to create a debt repayment plan that was sustainable within his budget. He also received regular updates from his counsellor, which kept him accountable for his progress. This transparency provided Joseph with much-needed peace of mind and motivated him to adhere to his new payment plan.
Alternatives to traditional loans
Individuals under debt review may encounter financial hardships for a number of reasons, and while the process provides them with a structured repayment plan, these unforeseen expenses can cause them to fall behind on their existing debt repayments. If this happens, they will want access to additional credit in order to cover these expenses.
However, as a result of the restrictions on further credit under debt review, it’s often difficult for individuals to obtain loans from traditional lenders. This is because extending loans to these individuals would violate the National Credit Act, which states that an individual under debt review shouldn’t incur further credit until they’ve successfully exited the process and received a clearance certificate.