Borrowers with low income often find it difficult to acquire a personal loan, but luckily for them there may be inexpensive financing choices available to them.
If you have a low income, getting a personal loan is not difficult. Although many creditors in South Africa have minimal income criteria, others are more concerned with you having a consistent income that is above a certain amount.
Even if you qualify for a personal loan while having a low salary, think twice about taking on debt if the monthly payments would put a burden on your budget.
You might be able to find financing that is less expensive than taking out a personal loan.
What is the definition of a low-income loan?
The definition of a low-income loan is essentially a personal loan granted to those who earn less than a certain amount of money.
A low-income loan can refer to a lender that has a low income threshold for borrowers when it comes to personal loans, e.g loans for people who earn less than R10 000 a month.
Some lenders such as banks have a minimum income requirement, while others just want proof of consistent income, regardless of the amount.
How can I get a personal loan if I have a low income?
When reviewing loan applications, lenders take into account a variety of criteria, including income. If you have a low income, these tips may help you be accepted for a personal loan.
01. Examine your credit report for any errors
During the loan approval procedure, many lenders will look at your credit history. As a result, make sure your credit report is clear of errors, such as misspelled names or erroneously reported delinquencies, which can harm your credit score and your chances of approval.
02. Make a list of all sources of income
Depending on the lender, low-income borrowers can utilize income from their job, freelancing work, or a pension.
03. Get a joint or co-signed loan
Having a co-signer or co-borrower on your application, especially someone with a better income and credit score, can help you acquire a loan with a lesser income.
04. Request a lower amount of money
The lender takes less risk with a smaller loan, therefore asking a lesser loan amount may help you get authorized. A smaller loan may result in reduced monthly payments and interest charges.
05. Reduce your debt-to-income ratio (DTI)
To reduce your DTI, pay off any debts that you can. Most lenders will tolerate a debt-to-income ratio of up to 40%, though lower is preferable.
Beyond the financial criteria, there are a few things to think about.
Consider not only the income criteria, but also the expenses and terms while looking for personal loans.
Things to think about before applying for a Low Income Loan
The expense of the loan.
The annual percentage rate of a personal loan comprises interest as well as any origination fees. The greater your APR, the more you’ll pay in interest each month and over time.
Terms of repayment
Personal loans often have payback lengths of two to five years. Longer repayment terms result in cheaper monthly payments, whereas shorter repayment terms result in reduced interest charges. A longer term may make more financial sense if your monthly budget is less owing to a lower income.
Pre-qualification is a option.
Before committing to a loan, pre-qualifying displays your projected rate and duration. It includes a soft credit draw, which means you may pre-qualify with various lenders without affecting your credit score. If you accept the offer, the lender may do a rigorous credit check, which may reduce your credit score briefly.
Alternatives to personal loans for low-income borrowers
01. You have some extra cash
To supplement your income, consider a second job like tutoring or dog walking. Even a part-time job might provide you with the extra cash you want.
02. Friends and family
If a friend or family member offers you a loan with better terms and rates, consider the implications on your relationship.
03. A loan from a pawnshop
Pawnshop loans allow you to acquire a loan by using an item as security. The loan, conditions, and interest are all agreed upon by you and the pawnshop lender.
You receive the thing back after you pay it off. Pawnshop lenders such as Cash Crusaders and Cash Convertors offer such credit solutions which you can make use of.
