Everything You Need to Know about Personal Loans in South Africa
As times get tight for everyone, you may find yourself contemplating trying to find a little help to get through a rough financial patch. Perhaps you’ve hit one pothole too many and need car repairs. Or a family emergency has left you scrambling for cash. Whatever your reason, you’ve probably wondered if taking a personal loan will be the right choice to help you through the hard times. We take a look at this class of loan, and whether it’s right for you.
Why would you need a personal loan?
A personal loan belongs to a category known as micro finance. These are not intended to be large secured loans like mortgages and vehicles, and are a fixed loan over a fixed time period unlike overdrafts or credit cards. They are instead smaller amounts used towards repairs, specific purchases, unexpected expenses and perhaps debt consolidation.
If you’re considering to get a personal loan in South Africa, it’s critical to remember that this is in no way ‘free money’.
Interest and administration charges will add up very quickly, and you’ll have to pay the original sum back plus all of these, within the agreed period, or face very strict penalties.
Interest rates are typically far steeper on personal loans in South Africa then they are on loans where there is collateral security (an asset such as a house or car), simply because they are more risky for the financer- after all, they’re simply taking a calculated risk that you can pay back the loan, they don’t have that asset to sell if you default!
Then again, they also can’t foreclose on an asset, so there are benefits too.
Only consider this type of loan if you’d like debt consolidation to restructure your payments more favorably for yourself, or if you have urgent need of fast access to money for a necessity. If you can live without what you are considering purchasing, rather leave it until there’s actual cash in your bank.
Consider a personal loan for occasions such as unexpected medical costs, burst geysers and other emergencies which will impact your daily life too adversely to wait out.
Because this is also a category where you may be tempted to borrow more money than is needed and spend it on things that aren’t essential or planned, it’s also critical to do your research well, choose the best loan company or bank, understand exactly what interest and fees will be charged to you, and make sure your total loan is in line with the costs you face.
Your installments should also be both affordable and manageable within your monthly budget.
What is a debt consolidation personal loan?
The debt consolidation loan is a special case. Here you will bundle all your debt into one single loan. This is not sequestration or debt review, simply a restructuring of your existing debt where all the small amounts due to many institutions are paid off and instead you make payments towards on one long-term loan at a more manageable rate for you.
Typically, you will manage to make your debt consolidation loan a repayment amount that’s lower than you were paying before, and you may opt for a longer repayment period to give yourself breathing room.
How do personal loans in South Africa work?
The amount and length of payment for a personal loan can vary widely, depending on the institution and your reason for taking the loan. There are payday loans, where small amounts (typically under R10 000) are loaned with the understanding these will be paid back within one or two pay cycles. Then there is the more typical long-term personal loan, where you will loan a larger amount (think R15 000- R500 000) over a repayment period of 1, 3, or 5 years.
Typically, the longer the loan period the less the interest rate, but remember- the loan is always more expensive the longer you hold it for, so choose your terms carefully. Don’t just opt for the lowest repayment rate and longest time! Your credit history, and whether you are blacklisted, will play a huge role in determining your interest rate, too.
Applying for a personal loan in SA
Most South African lenders will want to see your ID, proof of residence, at least 3 months of payslips and possibly your bank statements too.
Persons who are self-employed looking for personal loan will require further proofs, or may not be eligible for certain loans.
Be sure to check your credit history before applying, and choose only a few institutions to approach that offer products closest to your needs as making multiple applications, especially if rejected, may affect your credit record and chance of getting your loan.
Once you’ve found the right lender, be sure you understand the fees you will be charged before you sign- and find out if there is a penalty fee for early payment, too, as you don’t want any unpleasant surprises!
Top Personal Loan Companies in South Africa