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Banks charge up to 35% on loans
By INNOCENT MAPHALALA - SWAZI TIMES-28-Sep-2009
MBABANE – Cash-strapped consumers hoping to obtain personal loans from commercial banks should expect to pay back up to 35 per cent more on these advances, at the end of the repayment period.
This could come as disappointing news for financially troubled people looking at alternatives to notorious micro-lenders.
It was recently reported that a police officer who obtained a loan of about E38 000 from Select Management Services (SMS) was required to pay back about E74 000. The micro-lender charges him a total of E22 572 as collection fee over a three-year period. Mandla James Dlamini was being charged a sum of E722 as collection fee per month.
He has sought the intervention of the High Court in this matter, seeking an order directing the micro lending company to stop deducting the above amount from his salary. He wants an order directing that the clause relating to the collection fees in the agreement between him and Select Management is wrongful and unlawful.
He also wants to be refunded all the monies deducted from his salary by Select Management as collection fees. Investigations by this news-paper have revealed that even though banks charge less interest than micro-lenders, commonly known as shylocks, they also have hidden costs. A client who wishes to obtain a loan of E40 000, for instance, will have paid back no less than E54 000 after three years. This means that the repayment amount will be about E14 000 more than the principal debt at the end of the repayment period.
This is about 35 per cent more! Worth noting is that this amount includes insurance and loan management fees. Micro-lenders refer to such as administrative costs.
Commercial financial instit-utions in the kingdom are Standard Bank, First National Bank, SwaziBank, Nedbank Swaziland and the Swaziland Building Society. A client who recently obtained a loan for E40 000 from one of these banks has provided proof of her repayment terms. Over a three-year (36-months) period, she will be expected to have paid back about E54 000. At the time her loan application was approved, the Prime Lending Rate stood at 15 per cent. This rate is charged by all banks. The bank rate (interest rate charged by each bank independently) stood at eight per cent.
This meant that the total interest rate was 23 per cent. However, on top of this, she is charged insurance on a monthly basis. The insurance is charged based on the balance of the loan and keeps decreasing.
At the initial stages of the loan, the insurance stood at about E34. “I pay not less than E300 per month as interest. In some months, I pay up to E700,” she said. The average repayment (principal debts plus interest and insurance) per month is about E1 500.
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