Vehicle finance — If you want to buy a car, whether new or second hand, but do not have the funds available at the time then lots of lenders from banks to car dealers will be happy to offer you vehicle finance. This is a mid-term commitment paid off over several years. Vehicle finance allows you to enjoy the use of a car you cannot currently afford, but you will end up paying a lot of money for this benefit in interest instalments and if you don’t keep up the repayments your car will be repossessed.

Tip — If you are buying a car from a dealer who is offering you finance, get a vehicle loan quote from your own bank and another lender to compare costs and see which is cheaper. Some dealers suggest that getting finance from them is obligatory, but this is not true.

Home loans and long-term borrowing — These are essentially the same, since if you want to borrow large sums of money over long periods then you will have to secure it against an asset; your home in most cases. You may already own a house and wish to unlock the capital in your asset so that you can enjoy a higher standard of living or you may be a first time buyer looking to get on the property ladder. As most people are not fortunate enough to be able to pay for a house outright, a home loan is the only option. Home loans offer the best interest rates of all forms of borrowing (usually around prime minus two percent) because they are relatively risk free from the lender’s perspective. However, this does not mean that they are risk free from the consumer’s point of view; you need a secure job and good management of your finances to ensure that you can always make your monthly instalments.

Tip — Use a broker to shop around for a home loan; don’t just go to your bank or a mortgage originator as they won’t have a wide enough choice of lenders and may not be able to secure you the best price.

Debt consolidation — If you do find yourself in a position where you have lots of debts in different places then things can quite easily get out of control. You will have a number of monthly repayments to keep up with and will probably be paying far higher interest rates than you need to. By consolidating all these debts into your home loan you will not only benefit from simplified debt, but also from a far lower interest rate. For debt consolidation to be a possibility, the value of your home must exceed the value of your current home loan. The difference between these two values is known as 'equity' and it is this amount that you are borrowing against when you take out an equity release loan. However, you still need to prove that you can make the repayments on the bigger loan.

Tip — Although debt consolidation is a good way of reducing your monthly debt repayments, because it is part of a mortgage that is paid off over 10, 15 or 20 years, you could end up paying more in total. Therefore, if you can afford it, you should pay as much into your mortgage as possible and pay off your mortgage quickly, potentially saving yourself hundreds of thousands of Rands.

Debt counselling — Debt counselling is not actually a loan, but a system designed to help people struggling to pay their debts. It was introduced as part of the National Credit Act (NCA) to enable people to put their debt under review via a qualified debt counsellor who will then negotiate with a person’s credit providers and put together a repayment plan. Via the plan, a person promises to pay back part or all the money they owe, but at a fixed, affordable monthly amount. One of the vital elements of debt counselling is that the consumer under debt review is not allowed to take out any more loans or credit agreements.

Tip — Don’t wait too long if you are struggling to pay off your debts and don’t try and get another loan if you are already struggling with repayments or to find cash. Seek advice from a debt counsellor such as Justmoney.co.za's partner, DebtBusters.

Be informed when you borrow

You need to know your rights and commitments if you decide to borrow money.

The National Credit Act — The NCA was set up to help and protect consumers who enter into credit agreements with lenders. It regulates all lending institutions and aims to promote the development of an accessible credit market. One of the ways it does this is by setting maximum fees and credit rates that lenders can charge. Before you enter into a credit agreement you should know what these maximums are but by no means settle for them as by negotiating and shopping around you should be able to pay less. For more information use the Justmoney.co.za Guides and Tools and read 'your guide to the National Credit Act' and 'your guide to rates and fees'.

Your credit record — Under the NCA lenders are now required to be more thorough in their assessment of an individual’s capacity for debt. This protects consumers from entering into agreements that they will not realistically be able to cope with and stops lenders from being so prolific. However, it also means that it is very important to keep a good credit record. The National Credit Register is a database of credit records that lenders use to assess whether or not an individual can afford to take on a debt, so unless you keep a clear record you will find it hard to borrow money. For more information use the Justmoney.co.za Guides and Tools and read 'your guide to the National Credit Act'.

Debt counsellors — If an individual is struggling to make debt repayments then he or she may be referred to a debt counsellor, possibly resulting in the debt being restructured so that it is more affordable. However, having to see a debt counsellor will seriously affect an individual’s credit record and the ease of borrowing in the future. For more information use the Justmoney.co.za Guides and Tools and read 'your guide to the National Credit Act'.

Be sensible with debt — debt can spiral out of control very quickly and you may at some times feel like things are getting out of hand. However, if you manage your finances carefully, seek help if you do get into trouble and follow the basic rule of never borrowing more than you can afford then you should be able to keep out of trouble.