By David Scholtz - Chief Financial Officer at Eduloan
Few of us
can afford tertiary studies without a loan. And, let’s face it, to invest in
your future by securing a study loan can be an excellent decision as long as
you understand exactly what the loan entails and where it will take you.
Before you
even consider a loan, think long and hard about your future career path and how
your studies will get you there. It’s no use choosing a career, studying for
three or four years and then you can’t find work.
Proper
career planning, finding your niche in a job market where critical skills are
key in finding employment and good management of your finances all play a
crucial role in your or your child’s future.
It is a sad reality
that South Africans are generally ignorant about personal finance, and many
live by the habit of spending now and paying later. Currently the
ratio of debt to disposable income of households is around 76%, it tells you what percentage of consumers’monthly gross income goes
toward paying off debts. About 47% of credit active consumers are two months in arrears or more.
About 14% of these consumers have judgements or administration orders against
them. A fifth of credit-active consumers are three months or more in arrears.
This paints a picture of a nation overextending itself.
There are
several ways of getting and staying out of debt.
The first is
education about managing your personal finances and the cost of debt.
People who
know the meaning of debt, a loan and saving money- and who understand the
impact of these - are the people who can plan their lives and ensure a better
future for themselves and their dependants.
Debt
consolidation is another popular way of alleviating the burden of
over-indebtedness.
While this
may be a good idea for some, it can result in consumers being locked in to
paying off their debts for longer periods and effectively at higher interest
rates and fees.
The main appeal of debt consolidation is
convenience.
How does it
work? Instead of a consumer paying off a number of different loans every month,
which might have different interest rates, the consumer can just apply for one
big loan, pay off all the other debts they have, and then be left with making a
single payment towards that loan every month. The repayments are usually lower
instalments, giving them more disposable income, which at first glance seems very
attractive.
What most
people are not aware of is that debt consolidation locks you in. You still end
up owing the same amount of money, but pay your debts off over a longer period
and not always at the lowest available interest rates. This means you might end
up paying more in the long run. All that is happening is that the repayment of
the debt is delayed from the immediate to long-term.
The best
option remains to pay off all debt as soon as possible, and then start saving
the amounts that you formerly paid over to creditors.
The impact of over-indebtedness on the financing of study
loans is considerable. All credit providers look at certain criteria. The credit providing environment is regulated and
interest rates are determined based on creditworthiness which includes both
affordability and behavioural history. First they will assess the affordability of the commitment
to the consumer; they will look at the regular expenses, the disposable income,
repayment track record and credit history. The industry is regulated and there
are strict rules in place. If you are not creditworthy, it will prove difficult
to get a loan.
Eduloan’s
model is slightly different to that of micro lenders or banks. When looking at
credit our lending is to focus more on salary deduction, whereby we collect the
amounts owed via the employer and not the individual’s bank account. The funds
are also disbursed directly to the educational institution.
Although
Eduloan’s method of granting loans falls under unsecured lending, we have the
ability to collect before the person gets his take home salary, thereby
protecting our clients from defaulting as he doesn’t have to still pay his loan
back from the take home portion.
We also
educate clients about their loans. It is all about understanding the value of
the loan, how the loan is structured and, if denied, explaining why the loan
was denied. We explain exactly how Eduloan loans work in terms of the terms and
installments. We are very transparent and there are no hidden costs. The
interest rate is fixed, and the installments remain the same for the period
that clients sign for.
Here is our advice
to parents who want to be able to finance their children’s education:
- Live within your means and save
- Don't spend what you don’t have.
- You need a savings buffer for emergencies, or for when interest rates go
up.
- Try and save as often as much as possible.
- Don't buy on credit, especially for funding living expenses and
holidays.
- Have a plan – save for your children’s or your own education, or invest
elsewhere.
Mindsets about
financial literacy need to be changed, and not only of those who want to secure
their future. Corporate South Africa and other employers have a responsibility
too. The latter should consider offering financial literacy courses for their
personnel, who can then teach the basics to their children at home.
When you
look at debt, you need to understand that not all debt is bad, specifically
debt that will contribute to your financial well being. Educational debt falls
into this category as it gives you the opportunity to invest in your own or
your children’s education and will go a long way in setting up the foundation
for a debt free future as education is key in improving your income earning
potential.
ABOUT
EDULOAN
Eduloan is a leading education
finance specialist operating in Southern Africa. Since its inception in 1996,
Eduloan has provided
more than 7200 000 study loans valued at R3.7-billion and continues to help
thousands across Africa unlock their true potential. Currently,
Eduloan approves between 40 000 and 50 000 loans annually to students, a
significant proportion of them working professionals.
Eduloan’s loan offerings include
repayment options at extremely affordable, fixed-interest rates, for the
duration of the loan period.
Study fees are paid by Eduloan
directly to the institution, taking the administrative burden away from the
student/corporate institution. Loans can
be paid back either through a salary deduction or a debit order.
For more information, call Eduloan’s
Client Services Department on 0860-55-55-44 or visit www.eduloan.co.za.
Follow us on Twitter/EduloanSA and Facebook/EduloanSA.
