Personal Loans

Personal Loans

 

What is a personal loan?
A personal loan is a type of ‘unsecured debt’ which means that the loan is not backed up by a guarantor (a backer or a sponsor), and you don’t have to put down collateral, such as your home or car, before receiving the funds. It provides you with money to use at your discretion ­– unlike, for example, home or student loans, you can use the funds for an unlimited number of reasons.

 

How does it work?
Personal loans are fast and easy to come by. The application process is usually straightforward and, if successful, you’ll receive the lump sum up front.
The interest rate on a personal loan is usually linked to your credit score – the higher your score, the better the interest rate will be. If you have a bad credit score, chances are the interest rate will be less favourable.

Many lenders will let you determine your repayment timeframe to suit your financial needs. Repayments are usually set as fixed amounts over an agreed-upon time. This kind of repayment structure makes it easy to budget and manage your debt. Standard repayment periods for larger amounts are usually between 12-60 months. Smaller amounts can be loaned over as little as 3-6 months.

 

Why take out a personal loan?

  • A personal loan can help you cover unforeseen costs such as paying unexpected medical bills; financing home repairs or improvements; buying a second-hand car or motorcycle, or making a payment towards a family member’s education, e.g. pay school fees or a diploma.
  • It is often considered to be a good option for consolidating debt – e.g. student loans and other loans you struggle to manage. By consolidating your debt, a bank could possibly provide a lower interest rate and save you money in the long run.
  • If you have good credit, your interest on a personal loan could be less than it would be for a credit card.
  • Even though interest rates are higher on unsecured loans, personal loans are considered to be safer than secured loans, which could force you to sell your house or car should you not be able to make the repayments.

 

Reasons not to get a personal loan:

  • Unnecessary spending – don’t borrow money for things you don’t really need. Shopping sprees, luxury accommodation, frequent trips to restaurants and clubs, expensive beauty products etc. all add up. Determine where you can cut back and save, so you don’t have to take out loans to finance your extravagant spending habits.
  • Big, once-off purchases or events, e.g. a wedding or honeymoon – it is better to save up and pay the cash price for these, rather than to repay them with added interest.
  • Avoid extra debt if you are already struggling to pay the bills or make repayments on other debts. An extra loan will only make things worse!

 

How much can I borrow?
Depending on the financial institution, maximum loan amounts offered typically range between R150 000 – R350 000.

 

Will I qualify for a personal loan?
Personal loans are usually offered to applicants who are over the age of 18, are permanently employed, have a bank account into which their salary is deposited, and earn more than a basic salary (generally R2000 or R3000, depending on the bank).

 

What do I need to apply?

  • Applying for a personal loan is quick and straightforward. Lenders require you to show your bar-coded South African ID, a current proof of address, and three months’ bank statements.

 

Make sure that:

  • you have shopped around – be confident that you are getting the most affordable loan; don’t just accept the first loan offered to you by your bank.
  • you have read all the fine print and understand the terms of the loan.
  • you are getting a fixed interest rate that it won’t go up before the end of your repayment term.
  • you are allowed to pay off your debt faster without paying penalties.
  • you understand the other products the lender tries to sell to you, e.g. insurance to cover you should you get into an accident before paying back the loan. Be wary of lenders who set the purchase of additional products as a condition for the loan.
  • you really need the loan in the first place. Wouldn’t it be better to cut back on your spending and save the money you need?