The concept of “buy now, pay later” has existed for an extended time and has always been attractive to individuals, according to NerdWallet. It is not difficult to grasp how convenient it is to acquire a good or service at a given time and not to have to pay for it immediately. Although the payment promise can include interest rates in the future and the amount of money spent becomes higher, people have taken advantage of the benefits of credit payment for a long time. Nowadays, in some parts of the world and in some social spheres, this trend may have been taking a new position, and people overuse the method. There are common risks entailed in being involved in a payment promise like this: new studies in South Africa have shown that a big portion of the population is over indebted, says Equifax.
All over the world there have been changes in the economic sector since the Covid-19 pandemic hit us. Action was taken by administrations to tame the consequences of the pandemic and the hard lockdowns imposed in order to protect the citizens. As a result, many individuals were forced to leave their jobs, or were fired from them, many had to change their consuming and commuting habits. There’s no escaping the fact that some of those changes came to stay and have deeply changed the fabric of societies around the world. What is more, economies now are being affected by the consequences of the war held between Russia and Ukraine, which in turn may bring changes to the economies of the world that we cannot fathom at the moment.
What has called the attention of experts is that South African citizens have not been asking for personal loans or borrowing money from relatives and friends to pay for luxury items, or to buy a vehicle or change an old vehicle for a new one, nor to buy something they wish to own but do not really need at the moment, as had been, historically, the use of credit. People around the country have been applying for loans to cover basic needs, such as to buy food or pay for transport. One reason for this may be that in the country the prices of oil, food, like fish, vegetables or meat, and the price of means of transport have been rising.
Education as regards the best way to ask for a loan is a primary necessity. People need to be well informed about matters such as credit score and credit profile which are looked at by banking institutions before lending money to anyone. Loan applications may be rejected because of a bad credit score which is a reflection of people’s credit history, how much money has been borrowed, to whom, or which institutions, if the money has been paid back on time or with delay. All of these factors affect the results of credit applications. When rejected in the formal sector, there are ways of asking for a loan in an informal way, from informal, unregistered institutions to family and friends. All of these actions keep sinking people more into debt, instead of becoming a solution to their financial issues and needs.
If used in a responsible manner and while making informed decisions, applying for a loan may be the best course of action. However, borrowers must be aware of the importance of knowing all the risk this may entail. Being over indebted will never be the solution for a financial turmoil, since it will lead individuals into a spiral of debt, from which is hard to get out.