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A Fin24 user wants to know why does her debt escalate even though she continues to make payments towards it. She writes:
But what if you pay for 3 years now - it was R1 200 in 2013, R1 350 in 2014 and now in 2015 R1 414 - only for debt, but you still keep on owing more? The total debt for everything was R38 000 - when I called last week the consumer friend told me the debt of FinBond is R2 560 and I owe them R2 100, it's just getting more and more. Why?
Renée Marais NCRDC178 independent debt counsellor responds:
Every credit agreement includes terms and conditions which applies to you when the creditor agrees to grant you credit. It means that there is interest, charges, costs and fees involved. When it is a revolving loan that will extend for as long as you are in arrears on the contractual amount you may borrow against.
Typically a credit card. When you borrow money that has a beginning and an end to when the money is given to you and upon which date you must pay it back, the creditor usually gives you a quote.
The full amount to include the capital balance owed (the amount they actually give you) and the calculated amount that all the costs, fees, charges and interest will amount to.
A simple example: I lend you R1 000 but for you to borrow the money I have terms and conditions which state that all the costs, fees, charges and interest will amount to R200. This means you get R1 000 cash from me to use but you will have to pay back R1 200. When you have paid the R1 000 you have not settled your debt, you have to pay the full contractual balance owed which is R1 200.
I am not sure if this question applies to debt you have with a creditor outside of debt review or if you are under debt review.
If you are under debt review, the creditor is still only allowed to ask you to repay the contractual balance you signed for. In debt review only the term is extended and the instalment reduced. In section 66(1) which is protection of consumer credit rights in the National Credit Act 24 of 2005, creditors must not discriminate against consumers, penalise consumers or alter or propose to alter the terms and conditions of the credit agreement to the detriment of the consumer.
If you are not under debt review, you have to look at the contract you signed with FinBond. Their interest may be very high and if you pay less than the agreed upon instalment per month the debt will grow. There is hope though as the Constitutional Court ruled that the outstanding amount on debt may only add up to double (called the in duplum rule) and that has to include all costs, fees, charges and interest and that is what you pay back.
It is a good idea to possibly approach a debt counsellor to investigate this or give you advice. Please remember that professional people charge a fee for their time. You can alternatively lodge a complaint with the NCR on form 29 to be found on their website www.NCR.org.za and report the matter to them for investigation.
*Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query.
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