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Debt review is a legal process that protects individuals from predatory lenders and allows them to take control of their finances. The process is regulated by law and adheres to strict ethical standards.
It helps severely over-indebted South Africans with debt restructuring and negotiating with creditors to make repayment arrangements more manageable. But can you get a loan while under debt review?
What is debt review?
Debt review is a legal process regulated by the cash loans National Credit Act (NCA) to help over-indebted consumers get back on their feet. The process involves a debt counsellor taking over all communication with creditors while a consumer is under debt review, which protects the consumer from being harassed by creditors and gives them the time they need to start repaying their debt.
During this process, a debt counsellor will work to negotiate reduced monthly payments for you to repay your debt. This can include reducing your interest rates and bringing down your monthly instalments, which will free up money to cover other expenses. The NCA also legally protects your assets from being repossessed, so you will have peace of mind that your car and other assets are safe.
Once the debt counsellor has negotiated all your repayment arrangements with your creditors, they will issue you with what is known as a clearance certificate. This certificate indicates that you have satisfied all the requirements of the debt review process and are no longer over-indebted, with the exception of your home loan account (which is not included in the process).
At this stage, you can start paying a single monthly payment to your debt counsellor, which they will distribute to your creditors according to the plan they have arranged for you. This ensures that you do not miss any payments which could affect your credit score and cost you extra money in terms of late fees.
How does debt review work?
Debt review is a process where individuals work with a debt counsellor to negotiate new repayment terms with their credit providers. This helps them to get back on track financially and become debt-free.
A qualified debt counselor will analyse your income and expenses to create a realistic budget and repayment plan. This plan will take all of your existing debts into account, ensuring that they are paid off in full over time. Once all of your debt is repaid, the debt counselling company will issue you with a clearance certificate. This is known as the best way to get out of debt!
One of the biggest benefits of debt review is that your assets, like your home and car, are protected while you are under debt review. This is because you make one consolidated payment each month, which is distributed to your creditors. This makes it easier to manage your finances and reduces the stress of juggling multiple payments.
Another benefit of debt review is that you learn how to change your behaviour with money. This is important because most people who consolidate their debt end up going back into debt within a short period of time. This is because they haven’t established good money habits and don’t learn how to pay cash for things or spend less than they earn.
Can I get a loan while under debt review?
The National Credit Act stipulates that individuals under debt review may not secure a new loan. This is done to prevent borrowers from becoming over-indebted again and to protect them against financial hardship. But what if you need a loan for a car or home, medical bills or even to get your business off the ground?
At DebtBusters, we believe it is possible to secure a loan while under debt review. However, you need to be in a strong position and show that you can pay back the loan according to your repayment plan. If you miss payments, this will impact negatively on your credit score and make it more difficult to secure loans in the future.
It is also important to note that once you complete the debt review process, your credit score will improve. This will open doors for you when it comes to securing loans with more competitive interest rates and terms.
During the debt review process, your debt counsellor will create an affordable monthly budget that shows your expenses and income. They will then contact your creditors on your behalf and negotiate reduced instalments and interest rates. You will need to remain in contact with your debt counselling company and ensure that all payments are made on time. It is important to understand that you cannot exclude your home loan from the debt review process, as the National Credit Act states that all credit agreements must be included in your debt review application.
What happens if I miss a payment?
Once you are under debt review, you’ll get legal protection against creditors that prevents them from taking legal action or repossessing your assets as long as you stick to the repayment plan. This offers you much-needed peace of mind, which is why it’s important to stay committed and make your monthly payments on time.
The goal of the process is to help you regain financial control and become debt-free, which takes time and patience. As you make your payments consistently, your credit score improves. This positive track record demonstrates responsible behavior to lenders, which can open the door for better interest rates and loan approvals in the future.
When you miss a payment, you’re disrupting your budget and risking additional financial complications. You’ll likely need to reassess your priorities and adjust your lifestyle accordingly. Your budget depends on a delicate equilibrium between income and expenses, which is why it’s essential to adhere to your new debt repayment plan.
