Payday loans can be a great help to people when they are in a tight spot with money. More people are taking to the internet to apply for payday loans online. Lenders now offer R100 – R8,000 with repayments made within 1 – 6 months.
If you’re thinking of applying for a payday loan, we suggest reading the information below to make sure you get the best deal.
What is a payday loan?
Payday loans tend to be for loan amounts of R100 and R4,000 (first-time customers) or R8,000 (returning customers). They can be repaid between 1 day and 6 months and tend to have high-interest rates and charges. The charges are legally capped at 60% per annum, which amounts to 5% per month, though some lenders do charge less than this maximum.
Payday lenders charge two fees. This includes an initiation fee of 15% of the loan amount for loans smaller than R1,000, and R150 +10% for every R1,000 loaned, for loans bigger than R1,000. There is also a service fee of R57 per month that lenders can charge.
Who is a payday loan for?
People who need money quickly, but who can’t get it through normal sources, like a credit card or bank loan. Payday loans are not a long-term solution to your money problems and shouldn’t be used to manage or pay-off other debt. Rather, they are usually a way to tide you over for a few days between paydays.
Who can apply?
There are several ways to apply for a payday loan but the most common are applying online, over the phone and in store if the lender has a storefront location. You will need to meet some basic criteria to be considered for a loan. These are:
- At least 18 years old
- In possession of a South African identification number, and a bank account
- Able to repay the loan and all associated costs
When you apply you will need to tell the lender the amount you want to borrow, how long you will borrow it for, and when you will get paid next. Most lenders will also ask for some documents from you to prove your identity and ability to repay the loan. Your credit history and financial situation will often determine your interest rate on the loan.
The lender will also often require details of your employment situation (salary amount and frequency, part-time versus full-time work) and details of your financial situation (expenses, assets, obligations). They will also need your banking information, in order to transfer you the funds and then set up your direct debit repayments.
Approval (should you receive it) usually takes just a few hours, and funds can often be in your bank account by the same business day, depending on when you apply and what bank you use.
Will the lender do a credit check?
Most South African lenders undergo a credit check on applicants wanting a payday loan. This is usually through a credit bureau, such as TransUnion or Experian, and credit scores are usually rated according to the following:
- 750+: Excellent credit score
- 720-749: Very good credit score
- 680-719: Good credit score
- 620-679: Sub-prime credit score
- 619 and below: Poor credit score
Some lenders don’t require a credit check and only assess whether you will be able to repay the loan based on your current financial situation. So you may still be able to get a loan if you have a poor or low credit score.
If approved for a payday loan online, when will I receive the money?
The approval time for payday loans online can differ across lenders. So can the time to receive the funds, depending on your bank and the lender’s processes.
Most lenders now use automated, online systems that can complete the assessment within an hour, so long as you have provided them with all the information and documentation required to make a decision.
If you apply before 4.30pm on a Monday to Friday, you may also be able to receive the funds in your bank account within one hour. If you apply outside of these hours, you will sometimes receive the funds by the next business day. This will depend on your bank.
What is the cost of borrowing a payday loan?
Payday lenders fall under chapter 5 of the National Credit Act as they that do not lend more than R8,000 per loan and have repayment terms under 6 months. Payday lenders are regulated and monitored by the National Credit Regulator (NCR). If a lender is licensed, it means their application to provide consumer credit has been approved and their business operations are in line with the regulations set out for payday lenders. All licensed lenders should display their NCR license number on their website. If you cannot find the NCR license number on a lender website, we recommend being extra cautious or finding another lender. You can also search the NCR database to verify whether your chosen provider is licensed to lend. The NCR database of all credit providers, including payday loans, can be found here: http://www.ncr.org.za/register_of_registrants/registered_cp.php
Like all providers licensed under the National Credit Regulator, payday lenders have a maximum amount they can charge on a loan. As a consumer, it is crucial to understand what fees are set out by the regulator so you can avoid overpaying for a loan from a non-compliant provider. A payday lender can charge an interest rate, initiation fee and a monthly service see. We will go into these charges in more detail below:
Payday lenders are allowed to charge a one-time fee on an approved loan with the funds transferred to the applicant. The maximum that a payday lender can charge as an initiation fee is R150 (+VAT 14%) for the first R1,000 of the loan plus an additional R100 (+VAT 14%) for every R1,000 thereafter.
The interest rate is a proportion of the loan that is charged as a fee for borrowing. Interest rates are usually expressed as APR (annual percentage rate), but with payday loans in South Africa, the interest is often displayed as a day or monthly rate. The maximum annual interest rate that a payday lender can charge a consumer is 60%. This works out to be 5% a month or 0.17% per day. As payday loans are usually repaid within a month, you should expect to pay around 5% interest on a loan.
Monthly Service Fee
Lenders can charge a monthly service fee for managing your account. The monthly service fee maximum charge is 50 (+VAT 14%), equalling R57. Again, as a payday loan is usually paid back within a month, it is likely you’ll only incur one monthly service fee, but keep in mind this fee will re-occur is you extend the loan period over one month.
So what am I likely to pay back?
You’re probably thinking that this seems complicated with all the different fees to take into account. Luckily, lenders will show the total amount you need to repay before you accept the loan. For example, Wonga allows you to select the amount you need and over what period of time, with the total cost of borrowing changing in real time with your selection.
To help, we have broken down the maximum fees you could incur when taking out R1,000 payday loan over 21 days, as an example:
- Initiation fee = 171.00
- Monthly Service Fee = 57.00
- Interest (3.57%) = R35.70
- Total to repay = R1,209.70
What other fees could I be faced with?
If you successfully repay your payday loan on time, you should not incur additional fees or charges other than those outlined above. Additionally, successful repayment will have a positive effect on your credit rating and likely lead to the lender increasing your available credit limit the next time you want to borrow money.
If you do default on your payday loan, however, your lender may charge an additional dishonour fee or late payment fee. Continued failure to repay a loan may result in legal action against you by the lender and a negative effect on your credit rating. We strongly advise that you carefully assess your financial situation before taking out a payday loan to be confident you will be able to meet the repayments.
How do I repay a payday loan?
In South Africa, the most common way to repay payday loans is in one payment as soon as your next payday arrives. This usually occurs in the form of a direct debit. If you can’t repay your payday loan you should contact your lender immediately and let them know you’re having difficulties.
Some lenders will be able to readjust your repayment terms so that you can more comfortably meet your repayments. This often incurs a late payment fee of some type, however, or may result in higher total interest payments if the repayment period is extended.
Other payday lenders may offer to halt fees and charges on the loan in extreme circumstances, so it’s always worth enquiring about your options. It’s never advisable to take out another loan to pay off a first one.
Remember! Only borrow payday loans from licensed lenders
We only work with lenders licensed with the National Credit Regulator. This means applying with a lender from our panel will help you avoid unscrupulous companies who charge unlawful interest rates. Our website is completely free to use and there is no obligation to take out a loan if you carry out a search. So, what are you waiting for? See how much money you can borrow, and find a lender today.
Friendly Finance support
We understand how stressful it is to be low on cash in a sticky situation, and we strive to make the process of obtaining the necessary loan as easy, convenient and stress-free as can be. To facilitate this, our customer service staff are here to assist you however they can. We’re not satisfied unless you are. You can apply now by following the link and let us help you today.