UPDATES: Alot of interest

FNBs media liason officer, Bongolethu Futuse, says that the interest rate is based on several factors, inclucing the applicant's age, type and period of employment, level of indebtedness and the repayment period. African Bank's rate is 170.4%.

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Submitted by : Joe Wolfson of Echunga on 2010-01-31 02:42:48
I think we need to be careful how we deal with problems like this. I as a young newly qualified person ran up debts I could not afford and spent about 5 years paying for my sins of around 6 months.

It has made me aware that the system seeks to enslave you. Once you are on the debt spiral than you work to service the banks. It's no different overseas - in the UK for example, I have been helping someone with an interest rate of 19.9% and a loan guarantee policy that's technically impossible for them to claim on as he is self employed the policy is at a total cost of 36% of the loan and earns interest at the great rate of 9%. This all in an environment where the official bank rate is 1.5%.

So South Africa is no different and I don't think that anyone, other than socialists, believes that the calculation of the interest rate is anything other than a risk reward process. The higher the risk the higher the rate of interest. The forcing by any means to regulate or suggest that all interest rates should be the same without recognition of risk is irresponsible and inflammatory. The consequences would be to condemn the entire nation of home owners the responsibility to cover the bad debt of the risky loans. In addition, this would force banks to grant loans even though they knew the person wouldn't or couldn't service them under the disguise of non discrimination procedures.

Sorry Mr Editor I don't think there is currently a system that's better in practice than capitalism so you won't get my vote in this regard and you appear to be a little bit biased here. I don't like banks , I don't like the way they behave and would support laws that prohibit them from lending people money they cannot afford to repay but single platforms of interest rates for all types of risk is not just outrageous but illogical.

Editor's Note
Thank you. Only politicians would be in votes-seeking business not this Editor. Banks are under no obligation to lend money if they don't want to; how many applicants have had their loans applications turned down?
Submitted by : David Claase of Johannesburg on 2010-01-04 20:53:00
Er...yes...high risk borrowers DO need to pay more...it's a pretty simple principle to understand, Mr Nose. Let's take insurance premiums - someone who insures their car which is left, unlocked, with no alarm or immobiliser on a street in Hillbrow should probably by paying more of a risk premium then the person who keeps their suitably secured car locked in a garage, wouldn't you agree?

In terms of loan insurance - this is a category of insurance which settles outstanding loans in the event that the borrower dies (or is retrenched or disabled, depending on the policy). This cover does not settle if the borrower defaults on the loan. There is no effective type of insurance for outright bad debts as the premium would cost the same as the value of the bad debt. AIG learned that lesson the hard way following the sub-prime crisis. That is why banks try to price risk upfront and attempt to either exclude really risky loans, or price the risk properly.

In terms of Mr Moti - I suspect that you are clever enough, Mr Nose, to discount the validity of a "sample of 1" when building an argument, but nonetheless, your articles on Mr Moti rather implicitly indicated that Investec did business with Mr Moti based on considerations other than just a risk assessment.

Editor's Note
Yeah we can see you have a problem, that's why we have left your comments unedited. Just read more of Noseweek's back Issues and you would know it's not just a Sample of 1... Vuyani, New Era etc etc
Submitted by : David Claase of Johannesburg on 2010-01-04 09:26:09
Provided the bank was perfectly clear in showing the client the interest rate and the costs and payments associated with the loan then what is the problem? Let's understand the process - the person approaches the bank for a loan (banks may have sharp practises, but I'm not aware that they have started holding guns to heads to force people to take loans), the bank considers the risks attached to that applicant and prices the risk. The bank tells the person what it will cost and the person elects to take the loan or not. When banks reject loan applications then we get people complaining about how banks don't enable lending to certain segments of the population. What you are saying is that people must be given cheap money, without a premium for risk. If that were the case then the only way a bank could operate would be to take an average risk view across all clients and charge interest on all loans according to that average risk view. In such a case the low-risk clients will be subsidisng the high-risk clients and, in that instance, I can guarantee that the bank will be out of business in a matter of months (if not weeks...)

Editor's Note
You could be right, but do you mean to tell Mr. Nose that high risk borrowers need to pay more than the rest of the population? Aren't you aware that some banks also take insurance policies on the lent Money? You must have missed our reports on Mr. Moti, (http://www.noseweek.co.za/article.php?current_article=2069) who didn't seem as such a high risk borrowers, yet defaulted on a R1.4billion of Investec's shareholders money... COME BACK TO EARTH DAVID.
Submitted by : Scott Cundill of Johannesburg on 2009-12-27 20:20:46
African Bank bought out C-Direct (Credit Direct) some years ago. They turned micro lending into a very profitable little venture and their directors were cheered by their peers for creating such a winning business. Apparently, when you make a loan they hold your ID book, passport, credit cards, etc. to make sure that they are the first to get paid back. I'm not sure how much of this is still going, but I cannot believe it still doesn't continue. It makes sense - loan sharks have been making a fortune under the radar for years. Why not "legitimise it" and let the banks profit from doing exactly the same thing!!!!

There is a technical term for people like this. They are called wankers.


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