Most South Africans understand that borrowing money comes at a cost. What many do not realise is how difficult it can be to determine the true cost of credit, the actual affordability of repayments and the long-term consequences of decisions made at the point of “sale” for the lender as ultimately, they are a business first. Credit can be a powerful financial tool however in many cases, the reality behind credit agreements is far more complex and costly than what is presented upfront.

While regulations exist to protect consumers, gaps, outdated systems, and questionable practices often leave individuals exposed to long term financial harm. Below is my opinion based on what I have witnessed over the last Decade being involved in the financial sector with a clear, honest breakdown of some of the most critical issues affecting consumers today.

The Real Cost of Credit: More Than Meets the Eye

Many consumers focus solely on how much they need or qualify for and are only interested with what the monthly installment will be when taking out a loan or any credit for that matter. However, the true cost of credit extends far beyond the borrowed amount. For thousands of consumers who have applied for debt review over the years with our offices, we have witnessed the severe and shocking lack of understanding. They have no idea what the interest rates are that they are being charged on the accounts;

* They do not know how the lender / bank calculates the monthly interest

* nor how this actually affects the actual outstanding balance.

These consumers will often say: “I have been paying for more than a year, but my balance remains the same.” They are at times unaware of the other costs associated in the actual credit agreement and charges involved such as Service Fees, Initiation Fees and insurances linked to those accounts known as Credit Life Insurance which remain a fixed premium with lenders regardless of whether the balances are reducing. Many lenders fail to advise consumers they have the right to replace these insurances as all these charges do affect the actual monthly charged interest and subsequent Capital Balance. With assets such as a bond or vehicle it gets even trickier. You have highly variable interest rates that can fluctuate over time, increasing repayment amounts unexpectedly, outside of what a consumer can realistically afford compared to when they first applied for the credit. This, in turn affects their monthly budget immensely for an unknown period of time vs fixed interest rates- which too, has its negatives and positives. When it comes to insurances, specifically with a bond, we have noted that there are multiple things consumers must be aware of, preferably by an independent and registered financial advisor.

The result:
A loan of R100,000 could easily result in repayments exceeding R250,000 or more over time, effectively more than doubling the cost of borrowing. This lack of transparency or rather, clarity, is due to the heartbreaking fact that many consumers do not understand the “Total Cost of Credit.” This makes it difficult for consumers to make truly informed decisions and often leads to over-indebtedness.

Hidden Credit: A Risk to the Entire Lending Ecosystem

Some credit providers are extending credit without reporting it to the credit bureaus which is in contravention of the National Credit Act (specifically) sections 69, 70 and 110 as it refers to the statement that all credit agreements entered into must be listed and reported accordingly. While this may seem harmless, it creates serious systemic risks and is inherently problematic- where in some instances- it serves niche lending markets. However, when significant debt obligations (or any debt for that matter) are absent from a consumer’s credit profile, other lenders may make lending decisions based on incomplete information because they do not see the consumer’s full debt exposure. Therefore, consumers may appear less indebted than they actually are. This can lead to multiple lenders approving loans simultaneously. It increases the risk of other lenders falling prey to an increased likelihood of reckless lending. This while affordability could be skewed and miscalculated, which very likely could result in consumers spiralling deeper into debt.

Salary Deduction Deals: Convenience or Exploitation?

There are credit providers who partner with employers or businesses to offer loans on “special rates” with the condition that repayments are deducted directly from salaries. At face value, this appears convenient. However, consumers promptly lose control over their cash flow as these deductions occur before the individual manages to cover essential monthly expenses first such as Rent, Food, Travel etc. This means many are locked into agreements with limited flexibility which itself poses its own long-term risks. This raises important ethical concerns and questions. Are these arrangements truly designed to help consumers, or are they structured to secure repayment for lenders at (possibly) the expense of borrower wellbeing? Unfortunately, in far too many cases, the power imbalance suggests elements of manipulation or even exploitation- especially when financial literacy is low- while a vast majority of consumers are not really thinking long term and the effects thereof.

Outdated Credit Assessment Models

One of the most critical issues sits embedded directly inside a static framework of the National Credit Act’s affordability assessment criteria, which a substantial number of professionals argue are outdated. Challenges include expense tables that do not reflect real world living costs. This fails to account for inflation, Rising Fuel, electricity costs as well as Economic Instability. There is a sense of a divorce from reality when you consider the time these frameworks were designed. Borrowing limits by lenders for credit such as personal loans and credit cards were well under R100 000.00-where currently this has ballooned in some instances to R500 000.00 using the same methodology and framework. Not to mention that under the blanket of convenience, with some institutions you can now apply for credit on your banking app or even at an ATM. How, exactly, is affordability assessed in this instance? Having a block that just provides a pre–calculated living expense amount and a client to tick yes, surely cannot be sufficient.

As a result, in practice, Debt Counsellors – far too regularly encounter consumers who passed affordability assessments only months earlier, yet are already struggling to buy groceries, fuel their vehicles, cover school fees, and meet other basic household expenses. While the assessment may satisfy regulatory requirements on paper, it often fails dismally to reflect the real cost of living experienced by ordinary South Africans. In reality, they are left with insufficient income to survive. This mismatch forces many individuals into a cycle of short-term borrowing, living month-to-month on loans that were never truly sustainable. Debt Counsellors are the ones who are then given the task to negotiate with this very brutal reality- and it is becoming a losing battle on more fronts than just this framework. Because they are also constrained by these and many other frameworks. A Debt Counselling practice itself also must remain sustainable within the reality of inflation. But that is a separate topic.

Is Credit Truly Regulated?

While South Africa has a “Structured Regulatory Framework”, the material facts raise an important question. Can credit be considered “fully regulated” if the systems used to approve it are outdated and incomplete? Many issues arise such as disclosure from the consumer being insufficient. Then we have credit reporting being inconsistent, where some bureaus have one listing and others something entirely different. We often see this in the debt review space too.

Debt counsellors know that certain facilities, such as overdrafts, may not always be reflected as expected. Therefore, they don’t simply treat a bureau report as gospel. Consumers are specifically asked to carefully examine the listed accounts and identify anything missing. That’s done precisely to prevent an undisclosed/unlisted obligation emerging later and affecting the assessment/proposal. Incomplete or delayed bureau information is only one part of the problem. Even where the available information is accurate and the prescribed affordability assessment is properly conducted, the resulting assessment may still bear little resemblance to the consumer’s actual financial reality.

Debt Review listings could vary between bureaus. This is highly problematic because a client under debt review may not access further credit. While a bureau report is not properly updated, synced across platforms, as one would assume, and credit still gets granted… How is that sufficiently defensible while the creditors and bureaus are aware of this issue? I do believe an honest question must be asked. Is the borrower aware that the bureau any given creditor is using could likely reflect an inaccurate snapshot of their financial situation? (The answer is no because it is hidden in the fineprint) Do they know that the information being used to determine their apparent affordability may therefore not represent the same financial picture appearing elsewhere? There are also matters where consumers would approach multiple credit providers on the same day with each provider unaware of multiple credit assessments in play. Credit accordingly granted based on individual assessments only contributes to chaotic debt traps. My opinion is therefore that affordability models- as well as their implementation- leaves not just gaps- but chasms that distort reality. Chasms consumers are walking into because they have not encountered the operational consequences we have been forced to witness. Given what this message contains, would you consider the statement to be true that regulation has become theoretical rather than practical?

Final Thought: Awareness Is Your Strongest Protection

Credit itself is not the problem, it’s a lack of transparency into these inner workings, outdated systems and imbalanced practices. Consumers must learn to look beyond monthly repayments alone. They need to ask for a breakdown of the “Total Cost Of Credit” and understand what the total repayment amount upfront would really mean to them. They must understand all the fees, interest and insurance costs associated with the actual credit being asked for. Consumers must be cautious of payroll deduction arrangements and the long-term effects thereof. Regularly checking their credit reports, as this is vital to understand the level of indebtedness while monitoring if there is any malicious activity being reported.

Bottom Line is this;

What is presented as “accessible credit” can often become long-term financial entrapment if not properly understood. Credit is not inherently harmful. It can help families buy homes, finance vehicles, and navigate temporary financial challenges. The concern arises when consumers make decisions based on incomplete information or when lending practices fail to reflect economic realities. Greater transparency, stronger affordability assessments, and far higher quality consumer education would go a long way toward creating a healthier credit environment for everyone. And that, is in the true spirit of the Act. Let’s demand theory to be turned into an operational and sustainable reality across the board.