Personal Loans
A personal loan is one of the most basic types of loans. It can be used to fund anything – home improvements, furniture, a vacation, or an unforeseen expense. Some people use a personal loan to consolidate their debt, but this is not advisable.
A personal loan is a feasible option for anyone who needs access to immediate cash for personal use. There are two basic types of personal loans, secured and unsecured loans.
Secured Loan
A secured loan requires you to offer one or more of your assets as a form of collateral. If you are unable to repay the loan, the lending institution will be able to repossess your assets for immediate repayment.
You will generally be offered a competitive interest rate if you take out a secured loan, because the risk to a lender is not as high as in the case of an unsecured loan.
Unsecured Loan
An unsecured loan does not require that you provide any form of collateral. Consequently, you will pay more interest on an unsecured loan because the risk to the lender is greater.
There are many banks and lending institutions that offer unsecured personal loans. These are specifically tailored for people who do not have any property or assets to offer up as collateral.
Personal Loan Basics
A personal loan will help you to avoid the complications of borrowing money from friends or family members, and it may also be a viable option if you don’t want to rack up high interest credit card debt or affect your home equity. If you have a good credit rating and you’re looking to borrow a small to moderate amount of money, then a personal loan may be the most practicable option for you.
You can take out a personal loan of as little as R2000 or as much as R150 000, depending on the lending institution. Most banks and loan providers offer flexible repayment periods, so you can choose whether you want to pay it off over a period of 24, 36, 48 or 60 months. Monthly repayments are usually calculated according to your loan terms and your risk profile.
The National Credit Act has ensured a new level of responsibility in South Africa’s financial sphere. Lenders are required to do a credit and affordability check to ascertain your risk and credit profile.
Personal Loan Lending Criteria
Most reputable loan providers will ask you to provide them with your most recent monthly payslips, your South African identity document, your latest bank statement, and proof of residence.
Some added criteria requires you to provide proof that you have worked for the same employer for a few, usually three, consecutive months; that you earn a specified salary, somewhere in the region of R1500 per month; and that you take out insurance on your loan to protect you in the case of retrenchment, disability or death.
Things to Consider
Personal loans are often advertised as a way to consolidate debt. This is not an advisable course of action, as there very few personal loans on offer that are large enough to comprehensively settle a previous loan or multiple loans. If you’re looking for a loan to settle your debts, then a debt consolidation loan is the better option.
As with any loan, shop around for the best interest rate and always choose a reputable loan provider. Taking out a loan requires you to have a certain level of maturity and responsibility. Do not borrow more money than you can afford to pay back. If you take out a secured loan, you risk losing your assets if you default on payments, and you also risk doing serious damage to your credit rating if you fail to repay the loan. Take these things into consideration before taking out a loan.