After months in lockdown, many of us are venturing back into the shops – online or within a shopping centre, and you may consider opening a store account. But what should you be aware of before signing on the dotted line?
“Before you take on a credit agreement, the store needs to carry out an affordability assessment,” says Sarah Nicholson, Commercial Manager of personal finance website, JustMoney. “You need a pre-agreement quotation stating the interest rate and loan period. This must also show all the fees, as there may be costs that you are unaware of, such as insurance and monthly services.”
An account protection plan ensures that the full outstanding balance on your account is settled in the event of death, disability, loss of income or retrenchment. To find out more about what stores should tell you before you open an account, click here. Don’t be afraid to ask questions, even if they seem ‘stupid’, says Sarah. For example, it might seem easier to select the 12-months-to-pay option, but this comes at a steeper interest rate and will cost you more in the end.
“A credit score plays a key role in whether a lender decides to offer you a loan,” says Sarah.
When applying for your store loan, find out who to approach if you have a problem. The Credit Ombud is also a good contact, as that office resolves complaints when a consumer has a dispute with a credit provider. Find out more about the Credit Ombud here.
Once you’ve applied and qualified for credit, and taken your purchase home, stick to the agreement and pay the loan promptly. “Don’t get caught in the revolving credit trap, which means you can buy any time as long as you have buying power on your account and your monthly payments are up to date. Rather stick to buying this one item, and paying it off before purchasing something else,” she advises.
While you may be disciplined about paying off your store loan, what happens if the retail chain you bought from experiences financial problems? For example, Edgars and sister companies Jet and Thank U have been put up for sale after years of harsh trading conditions.
If a retailer or any other business that issues you with a store card, credit card, home or personal loan, etc. closes down, you are still liable to pay back the amount borrowed or taken on credit. The account protection plan won’t cover you for this event – it covers you for conditions within an existing, running business. Account balance protection is essentially there to cover for the likes of your death, occupational disability, retrenchment, loss of income and temporary loss of income. The type of cover also often depends on age category and job type. For example, the benefits a pensioner receives will exclude occupational disability. Similarly, someone who is self-employed will be covered for functional disability and loss of income, but not for occupational disability and retrenchment.
If the business rescue is successful, or if a chain such as Edcon is sold to a third party, the account holder is still obliged to pay, but can now continue to shop should the third party allow this.
If you are retrenched or if your income is negatively affected, you may have a claim against the account balance protection plan if the business that gave you the credit in the first place is still running, and if you are up to date with your instalments. Reach out to the retailer and lodge a claim.