loan agreement is a document
in which a lender sets out the
terms and conditions under
which it is pr epared to make a loan
available to a borr ower.
The main purpose of the loan agreement is to define
what the parties involved are agreeing to, what responsibilities
each party has and for how long the loan
agreement will last.
Herewith an explanation of the essential terms and
conditions of a loan agreement:
(i) A loan agreement must indicate the amount
of the loan, the amount of interest and other charges
added to the loan, which will make up the total debt.
The loan agreement should stipulate how the amount
should be repaid, i.e. once-off in one amount or in
equal monthly instalments if the loan is serviced over
an agreed number of months.
(ii)If the loan is paid off late, the loan is considered
in default. In such circumstances a lender may require
a borrower to sign a written Consent to Judgment. In
this regard it is important for borrowers to know that it
is illegal for such forms to be signed by a borrower at
the time of entering into the loan agreement. It therefore
follows that the signing of consent to judgment
or consent to an emoluments attachment order prior to
the borrower defaulting should stop it.
A Consent to Judgment form is signed by the
borrower whereby the borrower agrees that he or she
is indebted to the lender. The Court will then issue a
judgment on the basis as agreed on by the lender and
the borrower. Once the Court gives the Judgment, the
borrower can sign a written consent to an Emoluments
Attachment Order.
An Emoluments Attachment Order is a court order
whereby the judgment creditor (lender) is able to
attach part of the salary of the judgment debtor (borrower).
Once an Emoluments Attachment Order has
been granted, the employer of the judgment debtor
is obliged to pay a certain portion of the judgment
debtor’s salary to the judgment creditor.
(iii)Cooling-off period allows the borrower to
terminate the loan agreement within a period of three
(3) business days after the signing of the agreement
and, if the loan amount has been paid out, simultaneously
to repay the loan amount received, to the lender.
If the borrower terminates the loan agreement within
the cooling-off period, the borrower is only obliged to
repay the interest for the number of days that the loan
was availed of and not interest for the full period of
the loan agreement.
(iv)A micro lender may not retain the Bank Card
and Personal Identification Number (PIN) of a borrower
in respect of a loan availed of.
(v)The lender must, before the conclusion of a
micro loan agreement –
(a)Explain to the borrower in a language which the
borrower understands (if necessary with the assistance
of an interpreter) the essential terms of the loan
agreement so as to ensure that the meaning and consequences
of the agreement are understood;
(b)Allow the borrower an opportunity to read the
agreement, or have it read to the borrower in the case
where the borrower is illiterate; and
(c)Provide the borrower with a copy of the signed
loan agreement before or at the time of advancing the
loan amount and, if applicable, a copy of the insurance
contract pertaining to the loan transaction.
(vi)A borrower has the right to lodge a complaint
with NAMFISA if a lender has treated him or her unfairly.
A Complaint Intake Form should be completed
by the borrower and submitted to NAMFISA for
further investigation.
In conclusion:
It is important for a borrower to honour the terms and
conditions of the loan agreement. If a borrower is
unable to service a loan on the basis as agreed on with
the lender, the lender should be contacted immediately
and new arrangements made for the repayment of the
loan. It is important for the borrower not to remain
quiet and hope for the debt to go away; it will not
disappear and will only cause bigger problems and
expensive legal costs to the borrower in future. Do
contact the lender to explain your current difficulties
and to make new
