Credit Loans
Much like the rest of the world’s population, South Africans are currently struggling in a tough economic climate. Perhaps you find yourself in a financial predicament, and you are desperately looking for a way out. Credit loans provide some of the easiest ways of dealing with short-term fiscal tribulations.
Since most credit loans are unsecured loans, they do not require you to risk your property or any of your assets in the form of collateral. Granted that you meet certain criteria, a bank or lending institution will offer you a line of credit that you can use when you have need of it. Interest will be charged on all money that you decide to borrow.
The main types of credit loans are overdraft facilities, credit cards, and revolving credit personal loans.
Overdraft Facility
Banks provide an overdraft facility on cheque accounts; hence you will need a cheque account if you want access to an overdraft facility. The bank will make a certain amount of money available to you every month on this account, an overdraft limit. The amount of money that the bank extends to you will depend on your monthly income and your credit profile.
- How Does it Work?
If for instance your overdraft limit is R1000, you will be able to spend in excess of your account balance to the value of R1000 every month. If you use R600 of the R1000 overdraft limit, you will be charged interest on R600. When you are paid at the end of the month, the overdraft deficit together with interest will be debited from your account. Thereafter, you will once again have access to the R1000 overdraft limit for the next month.
The interest rate charged on overdraft facilities are determined by your credit profile. Banks charge interest according to the prime lending rate and the usury limit. This means that interest rates are negotiable and vary from one bank to another. Take some time to look for the best deal.
Most banks charge a once-off introductory fee to set up overdraft facilities. Thereafter, a small monthly administration fee is charged on overdraft limits that exceed a specified amount.
Credit Cards
Most lending establishments and all banks offer credit card facilities. There are a wide variety of credit cards available, each customized to suit specific income brackets and individual requirements. If you meet the lending criteria, you will be issued a plastic card that has a line of credit allocated to it, known as a credit limit.
- How Does it Work?
Credit card holders can use their card to make purchases at selected merchants. When you use your line of credit, you are liable to the credit card provider for the full amount that you use plus interest. The interest charged on credit card debt is usually more than that charged on other forms of debt.
There are credit cards available to people in high and low income brackets. If you earn a large monthly income, there are more options available to you. Reputable lending institutions that comply with the National Credit Act will also conduct a credit profile check to ascertain whether you qualify. Your profile and the type of credit card you select will determine the interest rate that you pay.
Revolving Personal Loan
Some banks provide a unique personal loan known as a revolving loan or a revolving credit plan. This type of loan provides you with a revolving line of credit. It has an indefinite repayment period, and it allows you the freedom to rotate back to your limit once 15% of the loan has been paid. In other words, once you’ve paid 15% of the loan total, you may borrow again on the same loan to the agreed upon limit without affecting repayments.
- How Does it Work?
If you take out a revolving loan to the value of R8000, you will begin to pay it back in fixed monthly installments. Once you have paid back 15% or more of the R8000 loan, 15% of R8000 is R1200; you will be able to borrow this money back. In essence, you have a continuing line of credit.
Like an overdraft facility, the interest rate charged on a revolving credit loan is calculated according to the prime lending rate and the usury maximum. Interest is usually calculated daily and capitalized monthly. Make certain that you are aware of initiation fees and any monthly service fees involved.
The loan amount and interest rate that you qualify for is determined by your monthly income and your credit risk profile.
Making a Decision
Credit loans are ideal for short-term financial dilemmas. They are best used for improving your cash flow, attending to an unexpected expense or purchasing something for which funds will soon become available. Try to avoid steady interest accruement and the continual debt cycle by paying back the money that you borrow as soon as possible.