It’s been interesting seeing the effects of the NCA. I imagined that it would have some effect on the economy, but I didn’t realise it would be this big. There was an article in a newspaper saying that rejections of home loan applications had increased four fold. There was an interview on the radio with a gentleman who owns a second hand car dealership and he reckons their sales have halved because of financing applications being rejected.
The impact is that the salesmen are now not earning enough commission to support themselves. Estate agents are also going to be earning less commission. This should have an effect on the property market. In fact, the effects of the NCA should be felt by everyone in some way.
I have now been directly affected by it because I’m in the process of buying a car. My previous car was financed by Standard Bank and paid up a while ago, so I naturally approached them first. Luckily, before I spoke to them, I bumped into this article about the ‘initiation fee’ specified by the NCA, which is meant to replace ‘finance charges’. Apparently the maximum fee is R1140 and R57 per month, and Standard Bank has decided to apply the maximum fee across the board.
The nett result was that when I applied for my car finance, they informed me that because it’s a private sale they outsource it and the total charges will be about R5000 plus the R57 per month! So, for a R40 000 loan, they want to charge me R5000 and R57 per month which is about 20% of the interest charge per month (and over 36 months works out to another R2000).
That is absolute lunacy. The only people who would be prepared to pay that would be those who have no choice, that is those who can’t afford another option. So basically SB is taking advantage of the very people the NCA is supposed to be protecting. The interesting thing is that because they are so strict about who they lend to now, they will have less bad debt and shouldn’t need to charge these high fees.
It’s pure greed, I’m embarrassed to be a customer of Standard Bank. I have cancelled my finance application with them and am applying with Nedbank which does not charge these fees.
I just have to say that I am finding http://www.hellopeter.com to be a useful tool. I posted my complaint about Standard Bank there and they called me the next day to see if they could sort out the problem.
I have used Hellopeter a few times in the past and have often managed to get my problem resolved after exhausting all other channels.
If you’re curious, SB could not waive the charges but said they would pass the information up the chain to where these policy decisions are made. So things might change in the future, but for now the charges are as I have described above.
Dax, I don’t think the banks are making more money than before. The difference is that they have to state it up front now instead of using hidden costs. Benefits of the act are that the customers are becoming more aware of the real cost of credit and bad debts should also reduce. The prices of 2nd hand cars will hopefully come down too.
The biggest problem I foresee is the confusion of comparing different finance deals, ie one vendor may have high init fee and low interest rate and additional monthly fee while another may have zero init fee but high interest rate and balloon payment at end. My recommendation for this is to convert all the offerings into pure loan formula, and comparing the resultant interest rates. This can be done using the RATE function in Excel. This is a effective means of comparing all different loan agreements, including whether it’s better to borrow from a mortgage instead.
Just out of interest, I ended up not using Nedbank either because although they didn’t charge initiation fees, their interest rate was astronomical.
I ended up paying cash for the car.
True, I think the NCA is at last making it up-front obvious to consumers what the government has been saying all along on posters in Metrorail carriages: credit is *expensive*