The real cost of debt that rolls over

There is one story I have heard from too many drivers. A loan that looked manageable on day one, and was unmanageable three months later.

Nobody in that story was stupid. They borrowed a small amount for a real need. What went wrong was not the first loan. It was what happened every week after it.

How a small loan grows

Here is an example. It is made up, but if you have driven for a while you will recognise it.

Say Sipho borrows R1 500 from an informal lender to fix his clutch. He agrees to pay back more at month end. Month end comes, and it was a slow month. He cannot pay it all, so he pays only the extra and 'rolls' the rest. Now he owes the same R1 500 again, plus a new charge for the next month.

Two months later he has paid more in charges than he borrowed, and he still owes the full amount. Then a tyre goes, and he borrows again, from someone else, to cover the first lender. Now there are two.

None of the individual charges looked huge. The damage came from time. Every week or month the debt stayed open, it cost him again.

Why rolling over is the trap

Most debt traps are not one big loan. They are a small loan that never ends. Rolling over feels like help in the moment: 'Just pay this bit and we will sort the rest next time.' But it means the clock starts again, and so does the cost.

• The charge repeats, but the amount you owe does not go down.
• Late fees and penalties pile on top when a payment misses.
• You start borrowing to pay borrowing, which is the point where most drivers lose control.
• The stress follows you into the car. Drivers tell me it is the worry, not only the money, that wears them down.

What a fair short-term loan looks like

I am not going to tell you that borrowing is always bad, or that a fair loan costs nothing. Lending money costs something, and a lender who says otherwise is hiding the cost somewhere. What separates a fair loan from a trap is how it is built.

• The cost is a fixed amount in rands, stated before you say yes.
• The term is short and fixed, so there is nothing to roll over.
• Repayment comes from the money that pays for it, when you are paid.
• There are no extra fees that turn up later.

Here is what that looks like in an example. Say you borrow R1 000 and agree to pay back R1 200 from next week's earnings. You know the total on day one. One week, one payment, and it is done. Compare that with Sipho, who paid charges for months and still owed the full amount he borrowed.

If you are already in it

If you are reading this and thinking 'that is me', you are not alone, and you can get out. Some practical steps:

1. Write down every amount you owe, to whom, and what it costs you each week or month to keep it open.
2. Find the one that costs you the most to keep open, and put any extra money there first.
3. Stop borrowing from a new person to pay an old one. It feels like a fix and it almost never is.
4. Talk to the people you owe before the date, not after. A conversation early is easier than a collector later.
5. If you feel you cannot cope, the National Credit Regulator has information on debt counselling, which is a formal process that can help.

What I want for drivers

The goal is not that you never borrow. Life happens, and cars break at the worst time. The goal is that when you borrow, you know the full cost on day one, and it is finished by the time next week's earnings land.

Every driver should be able to look at a loan and know exactly what it will cost them, no matter what happens. That is the standard I would hold any lender to, and it is the standard you should hold them to as well.