Q&A: Do you qualify for an emergency loan?
Lockdown is an ‘interruption of income’ and can make you eligible
Q: My wife and I both work in the hotel industry and since the end of March we’ve only received a third of our salaries. We are really stressing as our bills and accounts have fallen into arrears. Our credit cards and store cards are all maxed out on buying food and other necessities. With our income to expense ratio, I don’t think we will qualify for a personal loan. We have now heard about an emergency loan. Can you advise us on what an emergency loan is and what it entails? — Dennis G
A: Sebastien Alexanderson, CEO of National Debt Advisors, responds:
First, know that you are not alone. You are doing the right thing by gathering information before making financial decisions that can affect your future.
Emergency loans are completely legal. They are defined in section 1 of the National Credit Act as a credit agreement entered into by you, the consumer, to finance costs arising from or associated with:
- Death, illness or a medical condition;
- Unexpected loss of interruption of income; and
- Catastrophic loss of or damage to your home or property due to theft or natural disaster.
The loss of income due to lockdown is definitely seen as an “interruption of income” and provided all required documents are in order, you can apply for an emergency loan from your bank.
Your word that your income has been interrupted, won’t be enough. According to the national credit regulator, where you submit a declaration under oath as proof of the existence of the emergency, the declaration must clearly state the cause of the emergency, and where the cause of the emergency is the unexpected loss or interruption of income. The declaration must also provide the details of your employer (for employed people), or your business (for self-employed people).
In terms of section 78 of the NCA the overindebted and reckless provisions of the act do not apply to an emergency loan. In other words, credit providers do not have to conduct an affordability assessment before granting an emergency loan.
This means you will have no recourse if and when you cannot repay the loan and a debt counsellor can’t investigate the validity of a reckless loan claim.
Banks and microlenders are likely to adjust their scorecards to allow a greater range of consumers to qualify for their products.
I am concerned that the banks are being given carte blanche to lend recklessly, but just like it is up to us to take responsibility for our physical health and the health of our families (and continue trying to stop the spread of Covid-19) we have the same responsibility towards our financial health.
Nonpayment and skipping of payments will negatively affect your credit score.
Find out exactly what the interest, terms and conditions of your emergency loan will be before signing for it.
* Send your questions to firstname.lastname@example.org
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