Section 103 of the National Credit Act is causing an uproar with creditors. This Section states the following with regards to consumers under debt review:
103(5) Despite any provision of the common law or credit agreement to the contrary, the amounts contemplated in section 101(1)(b) to (g) that accrue during the time that a consumer is in default under the credit agreement may not, in aggregate, exceed the unpaid balance of the principal debt under that credit agreement as at the time the default occurs.
The amounts contemplated in section 101 refers to the total cost of credit. In layman’s terms, this means that you will not pay back more than double the outstanding balance on the date of default when under debt review.
An example is when you owe an amount of R100 000 on your home-loan when you apply for review, you will not repay more than R200 000 in total. If you were not under review and repaid the home-loan over 20 years at 10% per annum in interest, the total amount will be R231 000. The saving is R31 000!
This rule is called the in duplum rule and applies to all your debt and is one of the major reasons why creditors do not always look positively at the debt review process. It is, however, a mechanism that ensures that you are paying off your debt as quickly as possible.