Debt Consolidation Loans in South Africa

Debt Consolidation Loan Key Facts

• Purpose: Combine multiple debts into a single repayment.
• Affordability checks: Credit providers assess income, expenses, and existing debt before approval.
• Repayment terms: Repayment periods vary by credit provider, loan amount, and affordability.
• Costs: May include interest, initiation fees, and monthly service fees.
• Before accepting: Always review the repayment amount, term, fees, and total cost of credit.
• No upfront fees: Be cautious of anyone asking for payment before releasing a loan or guaranteeing approval in exchange for an upfront fee.

Does Debt Consolidation Actually Save You Money?

Debt consolidation can simplify repayments, but it does not automatically reduce what you owe or make borrowing cheaper.

Whether consolidation saves money depends on factors such as:

• The interest rate on the new loan compared with your existing debts
• Any initiation, service, or other permitted fees
• The repayment term of the new loan
• The total amount you will repay over the full term

A lower monthly instalment can make budgeting easier, but if the new repayment term is much longer, you may pay more overall. Compare the total amount repayable before accepting any consolidation offer.

What Debts Can Usually Be Consolidated?

Debt consolidation is generally used for unsecured debts. Depending on the credit provider, this may include:

• Credit card balances
• Store accounts
• Personal loans
• Overdrafts
• Other qualifying unsecured credit agreements

Not every debt can necessarily be included, and the provider will decide which balances are eligible. Secured debts, such as a home loan or vehicle finance agreement, may be treated differently.

What Income Types May Be Accepted?

Credit providers usually need to confirm that you have regular income and that the repayment is affordable. Depending on the lender, acceptable income may include:

• Full-time or part-time employment income
• Self-employed income supported by recent bank statements
• Pension income
• Regular contract or business income
• Other recurring income visible in your bank statements

Not every lender accepts every income type. Approval depends on affordability and the lender’s criteria.

What Do Credit Providers Assess?

Before granting a debt consolidation loan, a credit provider must assess whether the new repayment is affordable. Depending on the provider and application, this may include reviewing:

• Your regular and verifiable income
• Your normal monthly living expenses
• Your existing debts and financial commitments
• Your repayment history and credit information
• Your recent bank statements or proof of income
• The total amount of debt you want to consolidate

Approval is not guaranteed. The provider must still decide whether the new credit agreement is affordable based on your overall financial circumstances.

Before You Accept a Debt Consolidation Loan

Before accepting an offer, compare the new loan with the debts you are replacing. Check:

• New monthly repayment: Is it genuinely more manageable?
• Interest and fees: Is the new borrowing cost lower than the debts being consolidated?
• Repayment term: Will extending the term increase the total amount you repay?
• Total amount repayable: Compare the full cost, not only the monthly instalment.
• Debt behaviour: Avoid building new balances on accounts that have already been consolidated.

Consolidation is most useful when it improves your repayment position rather than simply replacing several debts with a new, more expensive loan.

Your Pre-Agreement Statement and Quotation

Before entering into a credit agreement, you should receive a pre-agreement statement and quotation showing important information about the proposed loan, including the amount of credit, interest rate, fees, instalments, repayment arrangements, and total cost.

The quotation is valid for five business days, giving you time to review the proposed costs and terms before deciding whether to proceed.

Do not accept a loan agreement you do not understand. If anything in the quotation is unclear, ask the credit provider to explain it before proceeding.

When Debt Consolidation May Not Be Suitable

Debt consolidation may not be the right option if:

• Your total debt is still increasing each month
• You would struggle to afford the new repayment
• The new loan has a higher overall borrowing cost
• The repayment term is much longer and significantly increases the total amount repaid
• You are likely to continue using the accounts or credit facilities that were consolidated

If you are already unable to meet your existing debt repayments, a new consolidation loan may not solve the underlying problem.

Debt Consolidation vs Debt Counselling

Debt consolidation and debt counselling are not the same thing.

Debt consolidation usually involves taking out a new credit agreement to repay or combine existing debts into one new repayment.

Debt counselling, also known as debt review, is a formal debt-relief process under the National Credit Act for consumers who are over-indebted and struggling to meet their debt obligations. It is handled by an NCR-registered debt counsellor.

Consumers who are under debt counselling cannot obtain further credit while the debt counselling process is in force. This is another important difference between debt counselling and taking out a new consolidation loan.

If you are already unable to keep up with your existing repayments, consider getting information about debt counselling before taking on additional credit. You can find registered debt counsellors through the National Credit Regulator.