What is credit?
It's almost impossible to live without debt today. Sometimes, getting credit is the only option you have to pay for something you really need.
Credit refers to buying something and pay for it later over a specific time, usually with interest. You can get credit only from institutions authorised under the National Credit Act, 34 of 2005, to provide credit to clients. This may include anything from a credit card to a clothing account.
Credit helps you make big purchases you cannot afford immediately, so you can pay in instalments over time. Credit is important because most people cannot buy a house or a vehicle with cash. In an emergency, credit can be convenient when you have not had time to save enough.
How does credit work?
It's important to understand how credit works so you can use credit responsibly to secure your financial health and achieve your personal goals.
When credit is given to someone they borrow money from a credit provider, to use when they need it, which must be paid back over time at a cost.
Credit has 3 elements:
- Risk: There is always a risk that a person will not be able to pay back the money they borrowed.
- Time: Money is always borrowed over a period, like 6 or 12 months or longer.
- Costs: There are always costs involved in borrowing money, like interest, initiation fees, and service fees.
Types of credit
Personal loan
Home loan
Credit card
Cellphone contract
Interest-free loan
