How to Choose the Best Personal Loan Lender?
There is a myriad of lenders offering personal loans in South Africa. But how do you choose which of them is the best loan company that can fit your financial needs?
Here are the things you should look for when choosing the best personal loan lender in South Africa.
Banks typically rank higher in terms of credibility since they’re more established and they follow stricter rules in operating their business. You can never go wrong transacting with banks.
On the other hand, be extra careful when dealing with alternative lenders. There may be bogus micro-lenders that will only trick you into giving them money in exchange for quick cash. There are also some lenders who charge high interest fees that are already outside the limit set by the law.
When looking for the best personal loan companies, always look at their credibility to operate the business. Never trust a lender right off the bat just because they offer the cheapest loan rates. Make sure they follow all legal requirements set under the National Credit Act.
2. Interest rates
The annual percentage rate (APR) of a loan refers to the additional amount your debt incurs every year. Its computation includes the interest rate and other fees your lender may charge.
Lenders are required to divulge the APR on their loans before you sign the loan contract. This makes it easier for you to compare offers from different lenders so you can get the cheapest loan rates in South Africa. The best loan companies will not hide this figure from you and instead, give you a detailed description of how they came up with their rates.
For example, Lender A offers a 10% APR on an R10 000 loan to be repaid in 24 months. Lender B, on the other, hand offers a 15% APR on exactly the same loan amount and terms. The offer from Lender A is obviously the cheaper option to choose since you’ll be paying a lower interest rate on your loan.
Personal loans may also be offered with two types of interest rates: fixed and variable. The first one refers to the interest rate that remains constant throughout your repayment term. Variable interest rates will either decrease or increase, depending on the value of the prime interest rate. Choose one based on the length of your loan term since this can greatly affect how much you’ll have to pay every month.
3. Fees and other charges
Lenders charge various fees for their loan products. It’s a way of profiting from providing the service. Even the best loan deals have these kinds of fees, so better take note of them in choosing the best loan company to deal with.
These are the fees you should look for when selecting the best personal loan lender :
- Initiation fee: Most lenders require you to pay this fee upon approval of your loan request.
- Monthly administration fee:Many loan companies ask for this fee which they use for managing your loan.
- Early repayment fee: Some lenders ask for this whenever you pay off your loan earlier than the agreed date. You’ll also be charged this fee when you pay an amount in excess of the required monthly repayment.
The best personal loan lender you’re looking for shouldn’t have this kind of fee. Seek lenders who allow (or even encourage) you to repay your loan early.
- Late payment fee: You’ll incur additional charges when you miss your monthly repayments. Aside from the extra charges, late payments can also negatively affect your credit score.
- Legal fee: During the defaulting process, lenders will spend money in hiring lawyers to help them recover the money you owe them. You’ll be required to shoulder the legal fees your lender incurs when you default on your loan.
4. Loan terms
Loans with longer repayment terms seem more appealing because they have lower monthly repayments. However, when you look at the bigger picture, you’ll be spending more to pay off the debt. When getting a loan, it’s best to get a shorter repayment time-frame. You’ll be allotting more for repayments every month but you’ll save a lot of money in the long run.
The best loan deals provide a good balance between both areas. They’ll offer flexibility in choosing the term suitable to your ability to pay and at the same time, give you a reasonable interest rate.
If you’re having trouble repaying your loan on time, it’s best to contact your lender immediately. You can both come up with a compromising solution that will satisfy both parties.
The best personal loan lenders should also offer loan extensions. This service usually comes at an additional cost which is reasonable since you’re basically asking your lender a favour. Although this is not an advisable approach, you should still check if your lender offers this option.
5. Application process
The best personal loan lender will give you a lot of ways to apply for a loan. They should be able to provide you with choices like calling, emailing, visiting, or having you complete an application form online.
Alternative lending companies lean more on online forms and email addresses in accepting loan applications. Banks usually provide better accessibility since they also have branches spread across the country, aside from having online application forms, a phone number, and an email address you can use to contact them.
6. Processing time
Banks take longer to process loan applications compared to other lending institutions. They spend several days to a number of weeks conducting thorough credit checks and financial profiling on loan applicants. Consider this a drawback for having the cheapest loan rates in South Africa.
On the other hand, many alternative lenders ditch the credit checking to greatly cut off their processing time on loan requests. Some can give you approval within a day or two.
Neither of them is better than the other. The choice depends on your financial situation and how urgent you need the money.