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A Fin24 user is questioning the high interest rate and why loan amounts are not decreasing under the debt review process. He writes:
"I'm on debt review but I inquired about certain loans that are not decreasing and I was told by my counsellor that Bayport has the right to charge the high interest even after a court order has been granted for debt review.
So when will those loans get paid up as the interest is more than the instalments?
And the creditor accepted the debt review process as it gets paid via the PDA. Can you please shed some light on this interest issue?"
Neil Roets, CEO of Debt Rescue responds:
When applying for debt review the debt counsellor will attempt to negotiate a reduced interest rate with the credit providers. Unfortunately a reduced rate cannot be enforced on the credit provider due to the fact that the process only allows for the debt counsellor to recommend the extension of the terms and reduction of the instalments, but does not allow for a reduction in the interest rate.
Should a credit provider not accept the proposed reduced rate, the debt counsellor has no option but to amend the interest rate back to the contractual interest rate, on condition that the contractual interest rate are not in excess of the maximum allowed interest rate.
Most debt counsellors make use of cascading payments when presenting the proposal to the credit providers. This means that as the smaller debt is settled, more funds become available towards the remainder of the debt. At the start of the debt review process it would therefore appear as if there is no reduction in the outstanding balance, and some account balances might increase slightly.
When the cascading payments come into effect more funds become available towards the capital on the account. If the debt counsellor implemented an annual escalation this will also cascade to the accounts on an annual basis, which has a big impact on the repayment term.
You are further protected by the In Duplum Rule which stipulates that the fees and interest charged may not exceed the outstanding balance as at date of default. If the outstanding balance was R20 000 as at date of default, the fees and interest charged may not exceed R20 000. Should this happen the fees and interest may no longer be debited against the account.
It is advisable to obtain a copy of the proposal, including the cascading payments, from the debt counsellor. This will give you an overview of when each account should settle. Should you want an account to settle sooner, you can increase the offer amount paid to the account, or pay extra towards the account as and when you have the funds to do so. This will ensure that the accounts are settled in a shorter timeframe at which point you can be declared debt free.
Hope that helps!
*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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