Best Personal Loans in South Africa in 2023

Although we want to think that the world is turning into a cashless society, we still need some cash to sort out important things in life. Sometimes, whatever you earn may not satisfy your needs and wants, and that is why banks in South Africa provide personal loans to their members. 

Many South Africans sign up for personal loans without having a proper understanding of what that is. This article will delve deeper into personal loans and the best personal loans you can take in South Africa.

Compare the Best Personal Loans in South Africa 2023

What Is A Personal Loan?

Many banks in South Africa are in the business of loaning out big-ticket assets such as cars and homes. The bank uses the assets as a payment guarantee. So, if you default payment, the bank takes and auctions your assets to recover their money.

Sometimes may need some little cash to finance a small project or cater for a small occasion. It becomes difficult to gain a personal loan when you don’t have an asset to act as collateral for your loan. Because of this, the banks give you little cash with a high-interest rate.

Banks in South Africa offer personal loans with fixed interest rates charged annually on the total amount borrowed. That means you pay the same amount of interest from the day you pay your loan to the final day.

Why Take A Personal Loan?

Personal loans resemble micro finances. Most personal loans are small loans that do not need security, such as title deeds, houses, or cars. The only time the ban2 needs security comes when you have a poor credit score or have a bad repayment history. This kind of loan involves small amounts of money that range from R 10,000 to R 20,000. The sum gets borrowed over a fixed time that runs from 6 months to 5 years.

As a borrower, you may use the borrowed money however you have to prove that you can afford to repay according to the stipulated terms and conditions. Otherwise, it is wise to use the money to complete essential projects in your business or home or pay pending bills. At all costs, avoid using the money in extravagant leisure activities that do not generate profits, such as paying for high-end vacations and shopping for unnecessary things.

So, if you are considering taking a personal loan in South Africa, remember this is not free money, and you will have to repay it. So, use it wisely lest you fall into a debt pit and get a poor credit rating. Also, note that you will pay back a higher amount of money than what you borrowed due to interest charged on the loan and administration fee. Personal loans in South Africa come with high-interest rates because they are unsecured. That means they are riskier to the lending bank since they are unsure whether you will pay back the loan.

Personal Loan Features

• Fixed duration of time: Personal loans in South Africa run between 6 months to five years.
• Fixed interest rates: The interest remains the same throughout the loan period.
• Set Loan Amount: The amount owed to the bank reduces with each repayment made.
• Annual percentage interest rate: The annual percentage interest rate shows how much you will pay for your loan. It is the yearly cost of the bank charges.

Types of Personal Loans

Before taking a personal loan, you need to know the different types of loans available to you. They include:

Secured or Unsecured Loan

 Banks offering secured loans need you to tie your asset to your loan. The asset acts as security to your loan, and in case of loan default, the bank seizes your assets (home, car, or jewelry) until the loan gets cleared. Secured loans allow you to take large loan amounts even when you have poor credit history. It also gives you a more extended repayment period which becomes easy to manage.

They do not tie unsecured loans to any assets and are suitable for South Africans with an incredible credit score. Many South Africans take unsecured loans because it is flexible. It allows you to choose the amount of money you want to borrow for six months-5 years.

Fixed or Variable Rate

Some banks offer variable interest, which applies around revolving credit. A fixed, variable rate applies to installment loans. Although your bank may not give you a choice to choose between the two, understand the rate your bank offers and how they work before taking a loan. 

Guaranteed or Unguaranteed Loan

Guaranteed loans involve a creditworthiness guarantor and can pay your loan back if you get stranded. Anybody close to you can secure your loan, provided they have a good credit history.

Guarantor loans are cheaper than payday loans and can enhance your credit ratings if repaid on time. However, getting a willing guarantor is tough, and if you get one, it can mess up your relationship if you cannot pay your loan on time.

Students Loan

A student loan helps university or college students to pay for their education through an overdraft. If you have little money in your account, you can still withdraw more for your educational expenses, provided you don’t exceed the limit set by SARS.

Debt Consolidation

This is where you use the deposits in your existing account to settle your loan. This saves you from high-interest charges and penalties that arise when you default to paying your loan or settle your payments late.

Lines of Credit

This is the type of personal loan you take for general purpose use. They offer the loan at a set credit limit, and you only pay back what you have used within the limit.

Factors to Consider Before Applying for A Personal Loan

It is crucial to research loan options offered by various banks in South Africa. After settling for a particular bank, consider several factors before applying for the loan. Enquire whether the personal loan you want to take stands as secured or unsecured. 

If it is a secured loan, determine if you will risk your assets for the loan if you cannot pay. If it is unsecured, consider the interest rate the bank charges on the loan, whether it is too high or bearable.

Determine the amount of money you want to borrow from the bank and if the bank will lend you the total amount. This is crucial because not all banks in South Africa can lend you the amount you want.

If you are seeking a loan, it means you want to use it in due time. Consider the time duration banks take to process your loan. Some banks are strict and ask for many documents that take a lot of time to verify. If you need the loan urgently, you can choose a bank that processes loans fast.

How to Get Personal Loans With the Best Interest Rate in South Africa?

Various factors mainly determine your loan interest. How much you earn determines how much you can borrow and the interest rate on your loan. The higher you earn and repay your loan, the lesser your interest rate. Your credit score also affects your loan’s interest. If You have a poor credit score, most banks will deny you a loan, and the ones you get will charge you high interest.

Basic Requirements for Personal Loans

Banks in South Africa ask for some documents before they process your loan. The documents act as an assurance that you can repay your loan. Some of the standard documents required by all banks include:

• South African ID
• Recent 12 month stamped payslip or bank statement
• An existing bank account under your name

How Personal Loans Work in South Africa

When you want to take a personal loan, you must follow a few steps that include:

Comparing Loans

Banks offer a variety of loans with various benefits and terms and conditions. It is wise to study the different loans offered by banks and even use a personal loan calculator to compare your options.

Going Through the Bank’s Requirements to Confirm if You Qualify

After finding the perfect list of banks that suit your budget and circumstances, ensure that you gain all the documents and information needed for applying for the loan. Check if you meet all the bank’s requirements, such as your monthly income, bank statements, and age.

Approaching the Bank and Making Applications

 If you meet all the bank’s requirements, you can apply with your favorite lender. You can visit the bank’s nearest branch or apply online. However, if you opt for an online application, the bank will still need you to physically submit some original documents such as ID and stamped bank statements to the credit and loans desk.

Getting Approval and Agreeing to the Bank’s Terms and Conditions

If the bank approves your application, you must accept the offer. You then agree with the bank on the amount of money you will borrow and the interest rate charged on loan. The agreement also shows the payment duration, which lies between 6 months to 5 years. Once the deal gets made, the bank transfers the borrowed amount into your bank account, which you can withdraw anytime.

Repayment

Many banks in South Africa need you to repay your loan off in monthly installments. The amount of money you pay each month depends on the total amount you borrow. In case you default on the monthly payments, the loan attracts additional interest and penalties. So before taking a loan, ensure that you can comfortably afford to repay the loan as stipulated by the bank.

Personal loans in South Africa work in different ways depending on the choice of bank, loan amount, and reasons for taking the loan. You can decide to go for payday loans which get deducted from monthly deposits in your account. You can take small amounts of money, settle payments in two cycles, or a substantial personal loan that can take you up to 5 years to pay back.

South African banks With the Best Personal Loans

To get the best personal loan deal, you need to find the best lender in the market. Here are some of the lenders.

Sanlam Personal Loans

Sanlam South Africa offers personal loans up to R 200 000 at a fixed interest rate. Every South African bank with Sanlam bank is eligible for a personal loan depending on their needs and situation. The bank loans you precisely what you can afford to repay. 

Sanlam allows you to make an online personal loan application. After the online application, you still have to submit your original ID and payment slips to the bank for verification. The bank then checks your credit status, and if approved, they deposit the amount borrowed to your account. Sanlam allows you to borrow any amount from R 5000 to R 200 000, boasting increments of R 1000. 

 If you complete your payment in 12 months, the bank offers you a 20% loan repayment deposited into your savings account. The bank also has a loyalty program, “Sanlam Reality,” that rewards borrowers for looking after their money. The program comes with great discounts on lifestyle, wealth, and health services.

Standard Bank

Standard bank South Africa has various personal loans available to all South African citizens that bank with them. The bank allows you to borrow from as low as R 3000 to a maximum of R 300,000 and repayable from 1 year to 7 years. The repayment period depends on the amount of loan that you borrow. They give a small loan a small duration, while huge loans attract several years of repayment.

Standard Bank charges an annual percentage rate of 24.75% on their loans. The good thing is that if you have some UCount rewards, you can use them to repay part of your loan. The bank gives you various terms for repaying your loan, such as:

• Term Loan

Offers personal loans at fixed monthly repayments that are payable in comfortable terms. If you’re a Standard Bank banker, the bank gives you a 2% discount imposed on your interest rate if you bank with them. Another additional 1% gets provided if you shift your salary account to this bank.

• Revolving Loan

This allows you to access funds when you need them without reapplying for credit. The banks only need you to repay 15% of the loan taken, and if you don’t bank with Standard Bank, you get a 2% discount on your interest rate when you open an account with the bank. If you open a salary account with the bank, you get an extra 1% benefit. The revolving loan allows you to borrow a minimum of R 8000 and a maximum of R 300000 for either or five years, depending on your borrowed amount.

• Overdraft

Standard Bank overdraft facility allows you to access extra funds in times of emergency. Instead of borrowing instant loans from other credit firms. Standard Bank has got you, and you can withdraw as low as R 8000 or as high as R 200 000 regularly. However, you need to have at least a monthly salary of R 8000.

ABSA Personal Loan

ABSA personal loans as financial solutions to all South Africans in need of the loan. It offers flexible loans with flexible payment times. You can borrow up to R 350,000 for up to 7 years at an interest rate of 17.5%. Application is available online, but you can also visit your nearest branch and apply from there with the help of the credit officers.

Pros and Cons of Personal Loans

Like every loan, personal loans have their fair share of advantages and disadvantages that you need to know.

Pros

Here are some of the benefits that you are likely to enjoy when you take a personal loan.

• Flexible

You can take a personal loan and use it as you desire, provided you will pay the loan at the agreed time.

• High Borrowing Limits

Many personal loans in South Africa allow borrowers to borrow up to R 350 000 for up to 1-12 years.

• Zero Collateral

Many personal loans are unsecured and don’t require collateral. So, you don’t have to risk any of your assets before you’re given the loan.

Cons

There are some of the disadvantages of a personal loan that you need to know.

• High-Interest Rates

Personal loans attract high interest because the banks take very high risks of giving you a loan with no guarantee of repayment.

• Penalties

Personal loans attract hefty fines when a borrower defaults payments.

Personal loans are good if taken with a personal growth intention. You can borrow to expand your business, repair your house or office or invest in a good profit. Various banks offer this loan at favorable interest rates and loan limits. Now that you know what personal loans entail and their benefits and disadvantages, you can choose your favorite bank and borrow some money.