Can you borrow R5,000 to repay other loans?

A new R5,000 loan can sometimes function as a small refinancing or consolidation loan. The idea is to use the new amount to settle one or more existing, more expensive debts and replace several repayment obligations with a more manageable arrangement.

For example, someone may have R2,000 outstanding on one short-term loan and R3,000 on another. A new R5,000 facility could potentially be used to close both debts if the lender permits that use of funds and the replacement loan has suitable terms.

The approach is useful only when three things happen:

• The old loans are genuinely settled rather than immediately used again.
• The new repayment amount fits comfortably within the monthly budget.
• The total cost of the replacement loan does not make the debt problem worse.

Why bad credit is not the only factor

South Africa's central consumer credit legislation is the National Credit Act 34 of 2005. Among its stated objectives are responsible credit granting, protection against reckless credit and mechanisms for dealing with consumer over-indebtedness.

Before granting new credit, a lender must consider whether the consumer can realistically afford the obligation. This means an applicant with old negative credit records but stable current income can present a different risk profile from someone whose credit record looks better but whose current budget is already under severe pressure.

There is, however, no legal right to a guaranteed bad-credit loan. Arrears, high debt commitments and weak affordability can still lead to a decline.

When taking another loan may be the wrong move

Borrowing another R5,000 should be reconsidered when the new loan would only delay a deeper affordability problem.

• The money is needed only to make the next minimum payment on another loan.
• Normal monthly expenses already exceed reliable monthly income.
• You repeatedly borrow from one lender to repay another lender.
• Several credit agreements are already in arrears.
• There is still no realistic route to full repayment after taking the new loan.

The National Credit Regulator identifies behaviours such as borrowing to pay other debts and skipping payments on some accounts in order to pay others as common warning signs of over-indebtedness.

Is there a legal way to “freeze” debt collection?

South African law does not provide a universal button that simply cancels debt, stops all interest or permanently blocks a creditor. What the National Credit Act does provide is a formal debt counselling / debt review process for consumers who are over-indebted.

The process is primarily dealt with under section 86 of the National Credit Act. A registered debt counsellor reviews the consumer's income, expenses and credit obligations, assesses over-indebtedness and can recommend a restructuring of debt obligations.

What happens to enforcement during debt review?

Section 88 of the NCA can restrict a credit provider from enforcing rights through litigation or another judicial process once the required debt-review procedure and notices are in place. That protection is subject to the requirements, exceptions and procedural rules contained in sections 86–88.

Debt review should therefore be handled through an NCR-registered debt counsellor, not through an unidentified company simply advertising that it can “erase debt” or “stop all interest”.

Does interest stop during debt review?

No. The National Credit Regulator states that interest does not automatically stop simply because a consumer enters debt counselling. Restructuring can change how debts are repaid, but entry into debt review does not by itself wipe out interest already permitted under the credit agreement and law.

A consumer under debt counselling is also generally restricted from entering into further credit agreements while the statutory restrictions apply. The NCA contains a specific exception relating to consolidation agreements, but ordinary new credit should not be treated as available once formal debt review is under way.

Section 129: what happens before legal enforcement?

The National Credit Act also establishes a procedure that applies before certain legal enforcement action can be started against a consumer who is in default.

Under section 129, the credit provider may draw the default to the consumer's attention and propose referral to an appropriate channel such as:

• a debt counsellor;
• an alternative dispute resolution agent;
• a consumer court; or
• an ombud with jurisdiction.

The purpose is to provide an opportunity for the problem to be considered and potentially resolved before the creditor proceeds with the enforcement process, subject to the requirements of the NCA.

What protects consumers from abusive debt collectors?

Professional debt collection is separately regulated by the Debt Collectors Act 114 of 1998. The Act established the Council for Debt Collectors, which regulates registered debt collectors and applies a formal Code of Conduct.

Conduct a debt collector should not use

The CFDC Code of Conduct and consumer guidance prohibit or restrict abusive and misleading collection behaviour. A registered collector should not:

• threaten violence or intimidate a debtor;
• use threatening, abusive or obscene language;
• pretend to be a police officer, sheriff or court official;
• use false or misleading legal documents;
• humiliate, embarrass or improperly expose the debtor;
• engage in harassment;
• make collection calls before 06:00 or after 21:00;
• make collection calls on a Sunday, subject to the applicable rules.

CFDC guidance also confirms that debtors have rights relating to dignity, confidentiality, legal advice before signing documents such as an acknowledgement of debt, and access to a statement on request.

What should you ask when a debt collector contacts you?

Do not automatically accept an amount simply because someone states that it is due. Verify who is contacting you and what the alleged debt relates to.

The CFDC specifically advises consumers not to give an unknown caller sensitive information such as an ID number or banking details over the telephone before the caller has been properly verified.

You can check whether a collector appears on the Council's official register: CFDC Active Register .

R5,000 refinancing or debt review: which fits the situation?

How to verify a debt counsellor

Be cautious with companies that advertise promises such as “erase all debt”, “stop every creditor immediately” or “freeze all interest”. Formal debt review is a regulated process and should be handled by a properly registered debt counsellor.

The National Credit Regulator maintains an official register that can be searched using the counsellor's name, trading name or registration information.

Frequently asked questions