How Personal Loans Can Help You in 2021
Personal loans are inevitable in current socio-economic conditions all over the world. It is not the real question that how reluctantly people go into debt but true question is that without damaging one’s economical integrity how sensibly a person manages to deal with debt collectors.
The pandemic situation not only has confined masses to their houses but also has made people consume their financial reserves. But, those who could not manage to save money had to take the hard step towards the loan. Even before COVID-19, South Africans were already bearing the burden of loans. A survey report by TransUnion in 2020 revealed that 37% of people were so worried about repaying loans of every sort e.g. home loans, student loans, personal loans, bank loans for cars, and store accounts, etc, and one debtor out of four was struggling to pay off the loans and bills by borrowing money from friends and family.
A careful mental work before taking out the loan
Gerald Mwandiambira (a certified financial planner) suggests that there are three major reasons why people take out loans.
First, the personal emergency during the financial crisis when people feel they lack sufficient funds to cope with the critical time.
Second, some people go beyond their means just to maintain their lifestyle without any compromise. They are good payers but they take out huge loans.
Third, people in this category don’t understand the fact that in the long run loans will cost them too much. Mwandiambira says:
“These people are not financially savvy enough to understand interest rates or how to manage the contracts. They often default on their loans and end up in financial ruin as a result.”
When should one take out a loan?
Some people take out loans for personal real emergencies e.g. for home or education. According to financial planners, this gives us a common sense to differentiate between ‘bad debt’ and ‘good debt’. Mwandiambira advises that one should not go beyond his/her budget circle while planning to take out a loan. One must afford repayments otherwise cutting expenses is the best policy. Getting out of a personal loan contract is difficult because interest rates are always high.
Read More: How to Get a Personal Loan in South Africa?
The actual cost of debt is interest
Interest rate upon borrowed money rapidly adds up. For example, to pay off the loan of R10, 000 at an annual interest rate of 21% over 54 months you pay R420 per month. It means after 54 months you have paid more than R20, 000.
The credit score is a big deal
One’s financial position and credit score count much for taking out a personal loan. A good credit score of 720 or higher than that can make you qualified for a lower interest rate.
Mwandiambira mentions that interest rates are not always clear so people bypass this information whenever they decide to take out the loan.
Personal loans are regulated and much safer which means you cannot have a loan if the moneylender finds you incapable to repay.
Your decision should always be assisted with information and conditions of a loan and while decision making your pocket range and circumstances should never be ignored. This is how Personal Loans can help you in 2021.