There are a few myths and misconceptions about interest; Hopefully, Credit Balancing Services can Cut through the Confusion to bring Clarity.

MYTH 1: No interest will be charged on accounts which are under Debt Review.
Placing accounts under Debt Review allows the Debt Counsellor to RESTRUCTURE the accounts. However, the terms of the original contract between the credit provider and the client are still in effect. Therefore, if the original contract entitles the credit provider to charge interest, they still have the right to charge that interest at the agreed contractual rate if the account is placed under Debt Review. In practise though, most creditors will consent to reduced interest rates when the Debt Counsellor proposes this (except as regards “secured” credit agreements such as Home Loans and Vehicle Finance).

MYTH 2: If someone goes under Debt Review and pays off all their debts, they may get a call afterwards claiming that there’s still interest outstanding that they have to pay.
The Debt Restructuring proposals which a Debt Counsellor will draft will make include a provision for interest. This may be at the contractual rate or a lower rate which has been agreed between Debt Counsellor and creditor.

MYTH 3: If my account was in arrears and I make a payment arrangement (or someone – other than a debt counsellor – makes one on my behalf), it automatically means that no further interest will be charged on the account.
When a client applies for credit and signs a contact with a credit provider, this is a legally binding agreement. The terms of the agreement can be changed if both parties agree (which should be confirmed in writing). If a reduction in interest is not specifically agreed to, the contractual interest rate remains applicable. There are companies (who are not registered Debt Counsellors who are advertising that they will negotiate reduced instalments for clients. The danger is that they DON’T negotiate reduced interest rates. This means that, although the client is paying less, their payments are not covering the monthly interest which is accruing. Consequently, the outstanding balance actually INCREASES every month.

MYTH 4: If I’m unemployed or a pensioner and I inform my creditors that I can no longer afford to pay my accounts, they will stop charging interest on my outstanding balance.
If a client has applied for credit and signed a contract with the credit provider (including a specified interest rate), the fact that the client’s circumstances have changed doesn’t change the terms of the contract. The creditor is therefore entitled to continue charging interest on any outstanding balance.

MYTH 5: Creditors (or collection agents) can keep adding interest on old accounts forever.
Fortunately for consumers, there are laws which protect against interest accruing beyond reasonable limits. Section 103(5) of the National Credit Act limits the amount of interest that can be added to an account which is in default. The Law of Prescription prevents creditors or collection agents from collecting on accounts which have been dormant for more than three years. The maximum rate of interest which a creditor can charge on a specific credit agreement is limited by the Regulations associated with the National Credit Act.
Please contact us if you feel that your rights under these laws are not being respected.

In fairness to credit providers, offering credit to clients is a service they provide, and comes at a cost to them. The interest they charge is the remuneration to which they are entitled for this service. However, it’s also important for us as consumers to understand our rights, and not be exploited or abused by service providers.