Many consumers find themselves in a tricky situation when they are under debt review and need to obtain a loan. There are some lenders who will approve loans for people under debt review but most of them require that you have proof that you have paid off a portion of your current debts.

What is a debt review loan?

A debt review loan is a form of financial assistance hopon loans that can be offered to individuals while they are under debt review. The aim of a debt review is to help individuals who are struggling with their finances and debts, to become more financially responsible. This process is regulated by the National Credit Act (NCA) and provides individuals with guidance and support. Individuals can also be restructured with new debt repayment terms that are affordable and more manageable.

While the debt review process is ongoing, consumers are unable to apply for new credit or loans. This is because being under debt review impacts the credit profile and makes it harder for reputable creditors to approve loan applications once they know that you are currently over-indebted.

During this period, individuals are advised to build a financial safety net so that they can cope with unexpected expenses. This could be done through a savings account, a trust fund or even by selling assets. Alternatively, a personal loan can be used to assist with paying off debts that are no longer affordable.

It’s important to note that, while debt consolidation is a possible solution for some individuals, it should only be considered in instances of significant over-indebtedness and after considering your budget, debt management plan and overall financial goals. This is because debt consolidation typically comes with higher interest rates than the debt review process.

How does a debt review loan work?

While under debt review, a consumer is unable to take out additional credit. This includes personal loans and credit cards. This is meant to help a consumer regain control of their financial situation by not allowing more debt to be added to the mix. The length of time you remain under debt review is dependent on a number of factors including your income and expenses, the ability of your counsellor to negotiate with creditors to reduce interest rates, and how strictly you adhere to your revised repayment plan.

Debt review is a debt relief program overseen by the National Credit Regulator that offers a structured approach to managing your finances. It helps you get your debt under control by negotiating with creditors, reducing interest charges and restructuring debts into an affordable monthly payment plan. It also helps you to retrain your spending habits so that you don’t find yourself in this position again in the future.

Unfortunately, there are unscrupulous salespeople who prey on consumers that are under debt review. They offer them credit in exchange for helping them to exit debt review. This is reckless advice as it could expose you to legal action from your creditors, and does not address the root cause of your debt problems. You are better off working towards your goal of being debt free with the help of an accredited debt counsellor.

How long will I be under a debt review loan?

The debt review process is designed to help consumers re-learn how to spend within their means and not rely on credit. It can be a challenging transition, and many consumers end up reaching out to informal money lenders for loans when they are under debt review. However, this is a dangerous path to follow and could result in the consumer getting into even more financial trouble. The law governing the debt review process prohibits consumers from asking for additional credit until they have paid off their existing debts according to their plan and received a clearance certificate from their debt counsellor.

A clearance certificate is then sent to the credit bureaus to remove any negative information about your debt review period. In most cases, it takes between 36 and 60 months (3 – 5 years) for an over-indebted consumer to become debt free while under the care of a debt counsellor.

However, most informal money lenders do not follow these guidelines and operate outside of the legal boundaries set by the National Credit Act and the formal regulations designed to protect consumers. This means that they charge interest rates well above what is allowed by the law and often add extra fees such as monthly admin charges and maintenance fee charges. This often results in a much higher repayment amount than what you originally borrowed and can make it more difficult to repay your debts in time.

How do I exit a debt review loan?

If a consumer decides to withdraw from debt review (which is perfectly legal), they will need to contact their Debt Counsellor and request this. However, it is important to note that even if a consumer’s financial circumstances have changed, leaving debt review won’t automatically make it easier for them to get credit. This is because to be able to withdraw from debt review a Court order needs to be rescinded and the declaration of over-indebtedness withdrawn.

This process is not only time-consuming, but it will also cost the consumer money. In addition to this, the consumer will not have access to credit until a Magistrate confirms that they are no longer over-indebted. This can only happen once all restructured debts have been paid in full and the debt counselling indicator has been removed from the credit bureau profile.

For these reasons, it is best for consumers to stay in the debt review process until they have successfully completed it. This will help them to learn how to live within their means and save for future expenses. Furthermore, the debt counselling process will ensure that any new credit that is taken on is done so responsibly and is not used to finance unaffordable living expenses. This will also help to prevent people from getting into the same debt cycle again that they came out of.