Types of Personal Loans You Can Get in South Africa
Lenders in South Africa offer a wide variety of loans, each one having different repayment terms and interest rates. Loans can be used to buy a house, start a business, fund school tuition, purchase a vehicle, and pay for medical expenses – things that require a large sum of money that you may not have at the moment. And planning to get a personal loan to cover up your financial needs.
At this point, you need to know few more details about each personal loan types that are available for you!
There are basically two types of personal loans-
- Secured Loans and
- Unsecured Loans.
Under these two, there are a variety of loans you can avail, each designed for a specific purpose.
A secured loan is supported by a collateral from the borrower which is used to reduce the risk a lender assumes in approving your loan request. This collateral can be seized in case you fail to repay the loan on the agreed terms. Collaterals can be any valuable asset you have, whether it’s a house, a car, or pieces of jewellery.
Since lenders expose themselves to lesser risk on secured loans, they charge lower interest rates compared to unsecured loans. The following types of loans belong to the secured debt category:
This is a type of personal loan specially designed for purchasing vehicles you can’t afford to pay in full in one payment. They’re convenient to obtain and have low interest rates since the car itself is used as the collateral. This means that it will be repossessed if you default on the loan.
Since this is a type of secured loan, you won’t have ownership of the car until you pay off the loan in full. Until this happens, your lender will hold the deed for you in the meantime.
The repayment period for this type of loan usually lasts from 1 year up to 5 years.
A home loan is a secured type of debt just like vehicle finance wherein the property itself is used as the collateral. Depending on your income, financial status, and credit rating, you can loan as much as R1 000 000 from home loan lenders.
Home loans can be repaid within 20 to 30 years. The 20-year plan is more preferred by South Africans for its affordable repayment terms.
The interest rate for this type of loan can be either fixed or variable. The average home loan interest rate in SA is 10%, which means your loan will have this rate until you pay off your debt, in case you choose a fixed interest rate loan. On the other hand, a variable interest rate fluctuates with the prime interest rate. This scenario is often more favourable to borrowers which is why more people choose this kind of loan term.
Unsecured loans, on the other hand, don’t require any form of asset to be used as collateral. This makes them more accessible to people who need money within the shortest time possible. However, because lenders shoulder a higher risk in providing this type of loan, higher interest rates are imposed on borrowers.
The following types of loans belong to the unsecured debt category:
Student loans are quite common in the country. This type of loan is offered by all banks in SA and by government agencies like the National Student Financial Aid Scheme (NSFAS). This enables more children to continue studying until they graduate from college.
Repayment for this type of loan occurs after the beneficiary graduates from school. Monthly repayments to cover the interest on the loan are still required, though, during the years of study.
After finishing school, graduates are given 3 to 6 months grace period to look for a job, before the lender starts requesting for repayments.
Financial experts strongly suggest resorting only to this type of loan for emergency purposes. This type of loan poses a higher risk to lenders compared to any other personal loan which is why its interest rates are way higher than other debt instruments.
Payday loans have extremely high interest rates and other exorbitant fees. This is why this should only be obtained as a last resort in emergency situations. Usually, you’ll have to repay 30-50% more of the amount you borrowed.
Payday loans are quick and easy to obtain, taking only a few minutes to a couple of hours before you get the results of your loan request.
Lenders of this type of loan usually don’t do credit checks to cut off the processing time. This is also why people who have been blacklisted or have a bad credit rating can avail this loan.
Payday loans are required to be repaid within a month. Lenders will automatically deduct the owed amount from your bank account, together with the interest incurred for the duration of the loan.
A Special Type of Loan
A debt consolidation loan is a type of loan designed for people who are having trouble paying off multiple debts. It’s a special type of loan that groups all your current loans into one big lump that’s easier to manage and repay.
People who are struggling to meet their debt obligations from various lenders can choose to have all their debts consolidated. What happens here is that a debt consolidation company pays off all your loans. In return, you’ll have to repay them under terms and rates that are easier and more flexible to comply with.
Visit our personal loans section to get more details information on how personal loan works, repayment terms and a list of top personal loan providers in South Africa.