Make informed choices

Source: CONSUMER COUNCIL OF FIJI How many times do we enter into a credit contract without having full information on the interest rates offered by the traders or the credit-providers?
04 Mar 2012 11:32

It is essential that consumers are aware of all information concerning a product they wish to buy.


How many times do we enter into a credit contract without having full information on the interest rates offered by the traders or the credit-providers?
We often overlook this, which is the most crucial aspect of borrowing money or taking credit.
Do you know lower interest rates help you save money? It’s very shocking to see how much money you can save by finding a lower interest rate and by paying your loan over a shorter period of time.
You need to understand interest rates and the impact; even small changes in rate can have on their debts and savings. It is your responsibility to ensure they are getting the best interest rate.

Case Study
Mr Lal needed a new pair of sofa and he visited a hire-purchase company where he saw one that he really liked.
It had a $480 price tag on it.
Mr Lal was in a position to afford anything below $500, on credit of course. He decided to negotiate with the sales person to give him some discount.
This was successful and it was agreed that he would pay $450 with low interest. Mr Lal was convinced by the sales person that the total payment would not exceed $500 for the two year contract term and that the interest was very low.
Mr Lal’s focus was on the nice three-piece sofa, hence he was not that interested to dig deeper on the interest.
He was not given pre-contractual disclosure and other information which would have allowed him to understand his financial obligation.
When he made his second payment, Mr Lal realised that he was paying high installments and it became difficult for him to meet his monthly payments.
When he inquired about the installments, he was shocked to find out that there was an annual interest of almost 20 per cent on the item. As a result he would end up paying more than $600 for the two-year term.
The little interest mentioned by the sales rep was not so little after all and the customer had no choice but to meet the payments.
It is important for consumers to compare interest offered by different hire-purchase companies. It is always advisable to shop for cheaper and reasonable deals offered by the hire-purchase companies.
You can only do this if you are provided with pre-contractual disclosures, which all hire-purchase companies – under the law – are required to provide.
We highlighted pre-disclosures last week where consumers need full information prior to the purchase so that they can make an informed choice while shopping.
Many vulnerable consumers are caught in such situation because they failed to ask for the interest rates or seek information such as what amount he/she would pay each month and what would be the total amount payable for the item after the end of two years.
Your rights and obligations:

  •  You need to evaluate the interest rates offered in the market. Always look for lower interest rate to save money;
  •  You need to investigate as to how much interest charges you would be paying by the time you finish your payments and own the product;
  •  Knowing your full interest charges for the hire purchase credit period will help you decide – whether to get into a credit contract or just purchase the item by paying the cash price;
  •  You must seek information upfront to be able to calculate the difference between the total cash price on the item you are buying and the amount of money you will end up paying if the product is taken on hire purchase;
  •  You must also make sure that you read the credit contract you are signing; and
  •  You must look out for the interest charges and any extra fee such as the consultation fee that is being levied.
  • Some of the requirements on interest that must be disclosed to the consumers as stated in the Consumer Credit Act are:
  •  the maximum amount of interest charge;
  •  whether interest is fixed or variable;
  •  is there a default interest rate i.e. what interest rate will be applied on the payments you failed to make; and
  •  What will be the total money paid by you as interest?
  • It is your right to have access to such information and credit providers must oblige to this disclosure.
  • However, you have bigger responsibilities which are:
  •  To ask questions on the interest rates offered by the hire purchase companies;
  •  To seek clarification on all charges and fees you have to pay before deciding to purchase an item on credit;
  •  To take independent legal/financial advise prior to entering into any hire purchase contracts. This can be your family, relatives and friends as well; and
  •  To sign the contract only after reading the entire document.



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