What is a personal loan?
A personal loan can be used for a variety of different reasons, and consumers usually need them to fill the financial gap when making a purchase like a car, a new kitchen, a wedding, or to help with an unexpected outgoing like replacing a new boiler. When considering your options, the first question needs to be – what the duration of the loan and how long will it take you to pay it back?
The amount of interest you pay back on the loan is influenced by the time period of the loan. For example, you borrow R10,000 at 20% interest over 48 months, you would pay back over R14,000. For R10,000 borrowed at the same rate over 24 months, the total repayment would be just over R12,000. Based on these loan term scenarios, you can see how the length of the term affects the total repayment amount.
As a general rule, it’s always a good idea to pay off the amount borrowed from the lender in the shortest time possible. This all depends on the affordability circumstances of the borrower to avoid prolonged interest charges. Please note that all loans require monthly repayments and failing to keep up with these could result in a negative impact on your credit score. This can affect your ability to access credit in the future, so it is worthwhile keeping in mind! The interest rates on the loans will vary depending on your affordability and credit rating.
The facts and criteria
Personal loans amounts span from R1,000 to R300,000. A personal loan is an unsecured option for credit, meaning a product that doesn’t require the borrower to pledge any collateral in the form of a security. The length of the loan can range from 1 – 84 months and you must be 18 years of age and hold a South African ID, such as a driver’s license or passport.
You will need to earn a minimum of R2,000 per month and have a bank account no less than 3 months old. You will also need to provide either the last 3 months’ pay slips or bank statements demonstrating proof of income after tax and general outgoings. Some creditors will require you to show ‘full time’ employment for a minimum of 6 months to qualify. Providers will charge a one-off initiation fee and a monthly service fee. The service is on average R57 and the initiation fee amount will be dependent on the loan amount and loan term.
Is it for me?
South Africa has one of the tightest and most transparent lending policies in the world. The National Credit Act (NCA) is on-hand to help consumers who advance into credit agreements with lenders. Before you sign any agreement, all available rates and charges should be made available to you prior to making a decision. If you are not happy with the rate or you feel you can get a better rate elsewhere, take a further look around the market and find the right financial solution to meet your personal needs.