How to Get Debt Consolidation Loan in South Africa

How to Get a Debt Consolidation Loan?

It can be a headache to manage numerous small loans, especially when each one of them has different repayment terms and interest rates. Many South Africans take into consideration getting a debt consolidation loan to make things easier to handle.

How Debt Consolidation Loan Works

It’s not unusual to manage different loans at the same time. You may be juggling two credit cards, a retail store credit card, a house loan, a vehicle loan, and a short-term loan which you used to pay for the hospitalization of a family member.

Short-term debts like quick loans and credit cards have high interest rates. Taking too long to pay these kinds of debts can be dangerous because of the compounding interest.

Debt consolidation loans restructure any existing loans you have and groups them into a single loan. This new loan usually has a longer repayment term and lower interest rates.

Debt consolidation companies will contact your current creditors to let them handle your loans. In return, the debt consolidation loan company will repay all debts on your behalf. With this, all your existing loans will now be handled by a single entity where all repayments will go. Instead of managing different loans, you will now have to deal only with the debt consolidation loan company.

Debt consolidation companies profit from this venture by giving borrowers longer repayment periods. As a client, this is advantageous to you because you will have lower monthly installments more fitting to your budget. However, when you sum up all your expenses in the long run, you’ll be spending more than you should if you just managed to repay all your loans on time. Make sure you make careful calculations before deciding to get a debt consolidation loan.

Just like personal and business loans, there are two types of debt consolidation loans: secured and unsecured.Secured consolidation loans are easier to apply to over unsecured ones. You will also get lower interest rates and better repayment terms for secured debt consolidation loans compared to unsecured loans.

How to Get a Debt Consolidation Loan?

Debt consolidation companies will ask you to fill out an application form which is usually available online. They’ll often require the following documents to be forwarded upon submission of application:

  • Payslips for the past 3 months
  • Stamped bank statements for the past 3 months
  • Proof of residency like utility bills
  • A copy of your barcoded ID book
  • Settlement letter from your existing creditors

The requirements may vary from one lender to another. Make sure you submit all of them on time to avoid getting your request delayed or rejected.

You can find debt consolidation loan calculator online which can help you decide whether applying for one is the best option you have. Debt consolidation loan rates are also displayed with the recalculated amount to give you a better view of how much you can save for consolidating your debts. You can usually find these calculators on the website of the debt consolidation company you want to deal with. Here’s one from DirectAxis and another from Nedbank.

Paying only one loan with a lower interest rate is definitely more beneficial than paying multiple creditors with different rates. You also get to save on administration fees and other monthly charges with a debt consolidation loan.

Now you may ask, “Where can I get a loan to consolidate my debt?

Banks often offer debt consolidation loans to those who have good credit standing. The higher your credit rating is, the better the deal you get.  African Bank, Nedbank, Capitec, and other known institutions offer the best debt consolidation loans in the country.

If you have a poor credit rating, you’ll have a hard time applying for a loan. Are there any debt consolidation loans offered for those who have bad credit ratings?

The answer is “yes“.

There are alternative lenders like Global Property FinanceBlue Oak Systems and Bond Busters who may offer unsecured debt consolidation loans to people who have a bad credit history.

Conclusion

A debt consolidation loan is a great way to settle multiple debts and save on fees and different interest rates at the same time. Instead of handling a number of accounts, you only have to pay the debt consolidation company within the agreed period.

This sounds like a very sweet deal, but remember that debt consolidation loans are not without drawbacks. It’s true that they have lower interest rates, but if you look at the bigger picture, you may be spending more than what you should have if you just paid your debts on time. Lenders profit from the longer repayment period given to consolidated debts and usually, you cannot pay ahead to cut on costs.

Just like any other loan, you must consider your financial capability first before going for a debt consolidation loan. Compute first if you really will be saving money on this type of loan compared to just paying each one on time.

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