Consumers warned against lay-by contracts

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The National Credit Regulator has called on consumers to avoid entering into lay-by contracts and instead save up to buy items in cash. It warns that consumers can end up in incidental credit agreements if they fail to meet their lay-by obligations with various credit providers. This means they are likely to incur interest on the items that they originally intended to buy without utilising credit.

It’s that time of the year when many consumers are going to be making purchases for the festive season, including buying school uniforms. Lay-bys are one of the popular forms of purchase as they allow consumers to buy items without incurring extra costs such as interest and initiation fees. But if you cancel your lay-by beforehand, you can be charged a cancellation fee for failing to honour your repayments.

And your lay-by could be converted into an incidental credit agreement, where you could pay interest on your lay-by. The National Credit Act allows credit providers to charge up to 29.25% per year for unsecured loans.

The NCR has urged consumers to rather use cash to make purchases and to avoid getting into incidental credit, which can cost them an arm and a leg.

“Anything that you cannot get inside the shop and get out with is got the potential to be problematic in the future. That means you do not have enough to buy whatever you are buying so just wait why do you want somebody else to keep things for you then,” says Bongani Gwexe of the National Credit Regulator.

The lay-by industry is now being digitised and consumers can shop for their lay-bys online, ranging from furniture to jewellery and clothing. And consumers can lay-by items for a period of up to 12 months. Retailers usually insure the goods on behalf of customers over the period of the lay-by.

Experts say that digitising layby has helped to reduce the rate of default on lay-by repayments.

“We give customers a personalised dashboard to easily make payments online to see how far they are with the process and can either cancel and amend if they want to. Now we are seeing much more customers completing their lay-by as opposed to industry standards,” says Andrew Katzwinkel of Layup technologies.

With many consumers struggling to have access to credit due to the stringent lending criteria that creditors have to abide by, lay-by could be a less costly option. But consumers are urged to read the terms and conditions of their contracts to avoid any disappointments with lay-by contracts.

The NCR has reiterated that cash is king as it allows consumers to negotiate prices as opposed to when you buy on credit or lay-by.