Fraudsters posing as licensed credit providers are on the rise, according to the National Credit Regulator (NCR), which recently released a statement urging consumers to be more vigilant when selecting alternative lenders.
Gary Palmer, CEO of Paragon Lending Solutions, says that too often business owners and property investors in South Africa fall prey to predatory lending, which imposes unscrupulous and abusive loan terms on borrowers, and can swiftly put businesses into debt. He therefore urges all business owners and property investors to be cautious when selecting a lender.
“Often business owners and property investors in urgent need of capital to secure business transactions are unable to obtain finance from banks due to stringent lending regulations, and therefore turn to private lenders as an alternative. Since 2009 there has been an increased number of non-bank lenders entering the market place in South Africa, which has made the access to capital easier.”
Palmer says that unscrupulous private lenders do however exist and business owners and property investors need to be wary of them. “These lenders often pressurise business owners and property investors into signing loan agreements in haste or which they don’t understand properly and end up accepting loans without conducting the necessary checks on the lender to gauge their credibility.”
He says that there are key points which borrowers need to remember before taking out a loan. “First and foremost the borrower must check that the lender is licensed and regulated. It is also crucial to confirm that all relevant information such as the loan terms, payment structure and terms and conditions are in writing, and to ensure that all terms are understood before signing. If any information is unusual or suspicious, borrowers must be sure to query it with a lawyer who is able to make sense of the details and jargon.”
Palmer adds that it is important that borrowers understand what they are signing for and know what the regulations are in terms of surety and cases of default. “Lenders want your loan process to be as seamless as possible, however unscrupulous lenders want your loan to default.”
Palmer advises that borrowers ask themselves the following questions before committing to any lender:
– How long has the lender been operating in the market;
– What type of lending do they offer? Are loans backed by moveable assets such as a car or boat?
– How many clients the lender has? This will often indicate how reputable they are I.e. if the lender only has one client, it may mean that they are inexperienced
– What is the history and current state of the lender’s books?
– Who has financially backed the lender? I.e. a bank or organisation
– Who prepares the client’s legal documentation and what regulatory body does the lender comply with?
It is important to be aware of this information to gauge whether they comply with the NCR regulations.