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Sangweni, a domestic worker from Jeppestown in Johannesburg, says the bank did not explain to her when she signed surety that she would be paying interest only until her son finds a job. Sangweni, who speaks Zulu, signed a quotation that is in English and was based on the assumption that the loan is repaid in 12 months. However, the term of the loan is in fact open-ended because the debtor only starts paying off the capital when he or she finds employment. This makes a total cost based on repaying in 12 months meaningless. In reality, you can end up paying interest only for several years and paying the equivalent of the initial loan a few times over. But this is not explained.
The borrower is not warned about the devastating impact of compound interest, at a prohibitive rate of prime plus 4%, when you do not pay off the capital amount from the start, Broekmann says. To pay R870 a month for 120 months at an interest rate of 7%. This means she will pay R137,400 for the loan.
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