By Tkay Nthebe
Part of being a responsible and desirable client for financial services providers (FSP), which includes banks, insurance companies and micro-finance institutions requires that we honour our financial obligations on time. This includes paying our loan instalments and/or insurance premiums on time for the duration of the financial agreement. In this article, I will focus on some of the consequences should consumers of financial products default or fail to honour their obligations.
- Bad credit record
In the last few years, Lesotho launched the national credit bureau that records, tracks and keeps consumers’ credit history. This means that all FSPs are able to check and verify if you are a good or bad payer when applying for credit facilities. Having and maintaining a good credit score is, therefore, very important which can be improved by paying for debit orders, providing for bank charges and paying loan instalments timeously. Consumers that are reckless in paying or honouring their financial obligations can be negatively affect their credit score, reputation and overall financial position resulting in no FSPs willing to extend credit facilities to them.
- Lapse of insurance policies
In cases where a consumer has short-term insurance policies for example, car insurance, house owner’s insurance or legal cover fails to pay the premium (which is usually paid in advance), the consumer will not be covered against accidental damage or loss. Should anything happen during this period, the consumer will be left in financial ruin because nothing will be paid out. Where there is a life cover policy or a funeral policy and premiums remain unpaid for two (2) consecutive months, the policy will lapse resulting in no benefits being paid out. This will negatively affect your children and loved ones who depend on you financially should you die during such a period. In addition, where your life cover is ceded to the bank as part of the collateral for your home loan, should the policy lapse due to non-payment of premiums, this will negatively affect your financial position leaving your loved ones without the assets you initially intended to secure for them.
- Repossession of valuable Assets, litigation and blacklisting
Where a consumer of financial products has credit facilities from FSPs for example a home loan, car loan or furniture bought from a furniture store fails to repay the loan instalment for three (3) consecutive months; the FSP or furniture store has a right to repossess the asset. This usually also results in legal action taken against the client, which not only affects your reputation but comes with substantial legal costs, accumulating interest on the outstanding loan that can leave you highly indebted. To avoid any of the abovementioned pitfalls, it important to avoid unnecessary and impulsive spending. For example, do you really need that new policy? Must you buy that new car or larger Smart TV now? Is it an emergency?
As discussed in previous articles, it is advisable to set financial goals, use a spending plan, do a financial health check and save. That way, you will be better prepared when making the latest purchases, ensuring that you afford the monthly instalments and keeping your credit record clean.
It is for the above reasons and more that we should honour our financial obligations and ensure we have a good credit score as consumers of financial products. Should you face any financial difficulty due to loss of income, retrenchment etc. it is advisable to contact your FSPs immediately and make the necessary arrangements. FSPs are always willing to assist, but only if you are honest and you reach out to them on time. Let us take responsibility of our finances and keep working towards building Leruo!