Personal loans are financial credit products that can be used for a variety of purposes, and generally, you can use the loans for anything you see fit, but there are certain lenders that can place restrictions on what you can do with them.
01. What is the purpose for Personal Loans?
When it comes to Personal Loans they can be used for almost anything you wish, so there isn’t a single explanation why consumers would take them.
Personal loans are often used for personal expenses such as paying medical bills or educational costs, starting a business, buying a new car and so forth.
Among the most common explanations are:
Unplanned or Planned Expenses
One of the most popular reasons why people take out personal loans is unplanned expenses that may rise up in our daily lives.
A family member can be hospitalized unexpectedly and you might not have the finances to pay for the medical bills, your vehicle can breakdown when you need it the most, these are a few examples of the unplanned expenses that you may encounter and might need to resort to taking out a loan.
On the other hand you may plan to expand your home or renovate it, buy a new car but might not have the finances in hand to do so, these are also examples where people can also take out personal loans.
Major Life Events
In life we all have milestones where we may need money to make them memorable, examples being weddings, graduations, baby showers, funerals, relocations, house warming and so on. Such milestones may require you to have finance and many people end up resorting to getting personal loans.
One of the advantages of a personal loan is that it will help you cover costs that are not covered by your savings.
Consolidation of Existing Loans
Debt consolidation is another major reason why people may take out personal loans. This process pays off any existing smaller loans and leaves the borrower with one larger manageable loan.
Advantages of debt consolidation is that they offer lower monthly installments, low interest rates, longer terms and help improve your credit score.
There is no Collateral
Most personal loans are unsecured in nature, which means you do not have to put up any equity when you borrow them. When you default, the loan lender cannot take a portion of your property as payment.
This makes qualifying for personal loans much difficult as lenders will impose strict requirements that ensures you will be able to repay back the loan.
If you default on paying your debts the lender can notify credit bureaus and this might result in you getting blacklisted or paying fines.
Loan Amounts
Personal loans in South Africa usually range from R1,000 to R350,000, and what you get will be dependent on your income, other debts, and credit score.
If your credit score and income is high you will be able to borrow much more money than if you earned less or your credit score was bad.
Fees and Interest
Most personal loans have fixed interest rates that range from as little as 7% to the recommended maximum of 24.75%, and will vary from lender to lender.
The advantage of fixed interest rates is that they are not affected by fluctuating market rates and will remain the same all through the loan tenure.
Loan interest rates that you are charged will be determined by your credit score, which means that lower your interest rate, the higher your credit score.
Repayment Schedules
Average repayment terms for loans range from 12 to as much as 60 months, but there are lenders such as ABSA that offer as much as 84 months for loan repayments.
The longer the repayment term the lower the interest rates, whilst shorter repayment terms have a higher interest rate charge.
02. How to Apply for Personal Loans
Applying for personal loans is easy if you meet their application requirements, and these usually require you to be over the age of 18 years old, in possession of your South African ID, employed permanently and have a bank account where you receive your salary.
Choose your loans carefully, much like you would any other debt, and just borrow what you can afford to repay. Take the time to calculate your monthly installments to ensure that you can repay them comfortably.
Until you decide on which is the best lender, compare things like loan amount, interest, repayment terms and monthly installments.
03. Choosing the Best Loan Rates and Conditions
Personal loans are available from a number of providers that include banks, private lenders and their terms and conditions can differ considerably.
Loans from Banks usually come with affordable rates and longer repayment terms, whilst private lenders have shorter repayment terms and higher interest rates.
04. How to Avoid Scams
When applying for personal loans remember to be on the lookout for loan scams, particularly if you’re looking for a lender that will accept you even if you have a bad credit background.
Avoid any lender who guarantees to approve your application without first checking your credit or requires you to send money to secure the loan.
