Why Loans Declined due to Affordability Review May be a Good Thing

Overview

Applying for loans is something that should ideally be done after having done the necessary research into the lending institution. Borrowers should also make sure that they assess their own affordability before applying.

According to the National Credit Act, credit providers are not required by law, to assess affordability of a borrower before providing access to credit. Affordability is measured by net disposable income.  This is calculated by using the applicant’s gross income, net income and fixed monthly expenses.

If monthly repayments exceed one third of the applicant’s net monthly income, affordability may be declined.

Why loans declined due to affordability may be a good thing:

As a loan applicant, you need to be able to afford to make repayments on the loan you’re applying for. It’s your responsibility to make sure that you assess your affordability before applying.

Keep in mind that the more disposable income available, the more likely the loan is to be approved. If your application is declined, you should take it as a sign that you may be over-indebted.

You can then take the necessary steps to ensure that you pay your debts off. Reduce your debt wherever possible.

In South Africa, where more than half of the 22.5 million credit-active consumers are over-indebted and have impaired credit records, credit providers are now required by law to assess affordability before granting credit.

Loans declined due to affordability may be a good thing in this case. By doing due diligence credit providers may be helping towards improving the credit standing of many applicants.

Loan applicants who are declined access to credit may do the necessary work to ensure that they improve their credit records by paying off outstanding debts or reducing debts where necessary.