In a perfect world where everyone was honest and there were no lawyers and laws, agreements would be made with a handshake and a promise. How cool would that be? Imagine walking into a cellphone shop and picking up the latest I-Phone. On the way out, you shake the sales assistants hand and tell him “I’m good for it man. First instalment will be paid at the end of the month.”
But the world is not perfect and people are not always honest, so we need contracts and consequences to enforce agreements. Contracts are such a big part of our lives that the majority of the time we sign on the line without even reading the contents.
When last did you take the time to read the fine print?
The most common excuse people proclaim when trying to wriggle out of a contract is ”I did not read it”, including the bit where it says “I have read and accept all the conditions of the contract”.
So what is a contract exactly?
A contract is an agreement whereby two or more parties agree to terms and conditions of an action or the provision or acceptance of a service. In other words, one party offers to carry out a task and the other accepts. For example a business owner offers their services to a client for a six month period, and the client agrees to the services. It is deemed broken or in dispute when one of the parties does not deliver on their obligations.
Although there are scores of different kinds of contracts, from DSTV to car rentals, some are more important to read than others. Knowing how they can affect our lives will save us months of frustration and potentially a lot of money.
Store Credit Cards
A retail store credit card is probably the easiest type of credit you can get but few people understand the long term implications of being exposed to this kind of debt. Firstly the interest rates charged on these cards are very high. Secondly if you do not pay on time you will get penalties levied on the account. If for some reason you default on the payments you will in all likelihood be blacklisted at the credit bureau. If you sign up for a store card make sure you know how the payment system works; even a few late payments can have an adverse effect on your credit rating.
There are numerous ways for a person to finance a car. As with all finance contracts the longer you borrow money for, the more interest you pay, so try and save up a large deposit and keep the repayment period as short as possible. Car loan contracts may seem pretty straightforward but if you get a slick salesman you could end up owing far more than the car is worth, down the road. Watch out for all the extras they will try to sell you like extended warranties and knick-knacks you don’t need. Residual or balloon payment leases look attractive because the repayments are reduced but this is an expensive way to finance a vehicle and you may have to pay money into the lease to resell the car. Go over a car contract with a fine tooth comb and ask for an explanation of every line item.
The last thing you want to worry about when marrying the love of your life is divorce. But don’t be naive, relationships change and you need to protect yourself. There are three types of contracts: In community of Property (COP), Ante Nuptial Contract (ANC) with accrual and an ANC without accrual. If you do not go to a lawyer and just get married in a church with a minister you will automatically be married in COP. This joins your assets with your partner’s assets and what’s yours is his and what’s his is yours. It’s highly recommended that you do not get married this way. A straight ANC without accrual means what yours is yours and what’s his is his and whatever you accumulate in the marriage remains yours if it was acquired in your name. Most people choose an ANC with accrual which means when you get married you own your stuff, he owns his and you share anything that you accumulate while in the marriage.
A Home Loan
Your home will probably be your biggest financial commitment. Make sure that when you sign for the home it is what you want and you are fully aware of the conditions of purchase and any defects are addressed. This is particularly important when you are buying a house “off plan”. Paying a Lawyer to go over the contract is well worth the money. When you make an offer on a home there is no going back. However you do have a 5 business day cooling off period after signing. If you back out of a sale you will open yourself up to being sued by the agent for commission and the homeowner for damages.
One of the biggest mistakes people make when purchasing an investment like an endowment policy or a retirement annuity, is to think they can either stop paying or cash it in at any time. There are a strict set of rules around investment purchases. When you sign up for any investment make sure you fully understand the small print and that you can afford to save the amount you have agreed to pay each month. Also make sure that you know exactly how your money is going to be invested. Insist on written documentation and a detailed explanation of how the investment is structured and what kind of returns you can expect to achieve. Only invest money with the large well – established financial institutions.
Life insurance, home insurance and car insurance fall into this category and this is the area where many disputes come into play. Anyone who has had to claim on policies of this nature knows that if you don’t hold your side of the bargain the claim can be rejected. The list of rules and conditions in risk policies is formidable and ignore reading these documents at your peril. Pay particular attention to “exclusions”, these are the clauses that most people come unstuck with. For example if you say you do not use your car for work purposes and then in an accident report say that you were delivering goods for your company, an insurer could reject your claim. Medical aid, car insurance, life insurance and home insurance contracts must be read thoroughly so you fulfil your part of the obligations as well as the company. There are of course many more contracts that you will have to sign in your life. Take the time to read the Latin bits, and consult with experts – it will save you money, heartache and time.
Make sure you read the fine print.
Until next time.
The Wise About Life team