Understanding debts

March 20, 2019

This contribution is a two part series educating consumers on types of debt and how the Consumer Council of Fiji can assist with managing debt 

In a world driven by impulse buying and irresistible advertising campaigns coupled by the need to have the best in life, staying out of debt can be a mammoth task. 

Understanding the kind of debt consumers get into is crucial for them. An understanding of the kind of debt makes it easy to plan finances. An ignorant approach to debt can easily land a consumer into financial trouble. For any person, debt is like the illness that never goes away, it persists and persists, never truly getting better until an action is taken. 

Therefore it is extremely important that Consumers understand the different types of debt. 

1. Secured debts 

A secured debt is the kind of debt owed against a collateral or security. You cannot be advanced secured debt if you lack collateral as a fall back plan for the lender should you be unable to repay your debt. Two common types of secured debt in Fiji include:

  • • Home mortgages – a mortgage is a loan secured by the property being purchased. This means that the lender will foreclose the property and sell it at an auction if a borrower fails to pay his mortgage.
  • • Vehicle loans – vehicle loans uses the car being purchased as collateral. The lender pays full price of the car to the dealership and allows the borrower to pay off the car in monthly instalments. In exchange the lender charges interest on borrowed amount. 

Most consumers with mortgages and vehicle loans seek the Council’s intervention concerning restructure of their mortgage repayments and forestalling of mortgagee sale action allowing time for consumers to stabilise their financial positions and may opt for private sale before banks take over the property. 

2. Unsecured debts 

Unsecured debts are not supported by any collateral. If a consumer is unable to repay the debt, the lender or creditor could penalise the consumer by adding hefty interest rates or by simply pursuing legal actions. The most common types of unsecured debts include:

• Credit card charges – credit cards function like loans. Merchants take money from card issuers with consumers paying back the latter. Other than interest, credit card companies charge annual fees, late fees and over-the-limit fees.

• Money lending– Money lenders give quick loans with little to no paperwork or background checks. Moneylenders must be registered and are allowed by law to charge interest rates of up to 12 per cent per annum.

• Unsecured loans – personal loans that require no security and as part of payment lenders charge hefty interest rates and penalise consumers for late or non-payment. 

Complaints with these issues are mostly around disclosure issues, exorbitant fees & interest charges, and incorrect fees & charges posted to accounts. 

3. Hire Purchase 

Hire purchase is a type of contract of purchase in which the seller or financier rents the asset for an agreed period of time in return for a set of monthly instalments. The buyer obtains ownership only when the full amount of the contract has been paid. 

Complaints to the Council regarding Hire Purchase usually centre on interest rebates after accounts are fully settled, repossession of goods when accounts fall into arrears and consumers seeking restructure to their accounts when they face financial difficulties. 

The Consumer Council of Fiji has a debt management and credit advisory services division that assists consumers to manage the debts when faced with debt financing issues and the Council also offers counselling on managing finances. 

Consumers seeking assistance or are facing issues with consumer debt are urged to contact the toll free helpline 155 or email complaints@consumersfiji.org 

(Next Week- How the Consumer Council has restructured debt for consumers?)