Lenders in South Africa provide a diverse choice of loans, each with its own set of repayment terms and interest rates.
Credit from lenders such as banks may be used to finance the purchase of a home, the start-up of a business, the payment of school tuition, the purchase of a car, and the payment of medical expenses – all of which need large sums of money that you may not have right now.
And you’re considering obtaining a personal loan to assist you in meeting your financial responsibilities.
At this point, you need to know a few more information about each personal loan kind that is available to you!
Personal loans usually come in two forms namely secured and unsecured loans.
Under these two categories, there are a variety of loans available, each customized to a certain purpose.
Secured Loans
Secured loans are credit solutions supported by the borrower’s collateral, which is used to reduce the risk that a lender takes on when issuing your loan request. If you do not repay the loan within the agreed-upon conditions, the security may be seized. Any valuable item you hold, such as a home, a car, or expensive jewelry, might be used as collateral.
Secured loans offer lower interest rates than unsecured loans since they expose lenders to significantly less risk. Loans in the secured debt category comprise the following types:
01. Vehicle finance
It is a type of personal credit designed for customers who cannot afford to purchase a new automobile in full in a single payment. Because the automobile is used as collateral, they are easy to get and have cheap interest rates. This means that if you owe money, it will be taken from you.
Customers will not be able to own the car because this is a secured loan until the loan is totally paid off. In the meanwhile, your lender will keep the deed for you until this happens. This type of loan often has a repayment period of one to five years.
02. Home Loans
Home loans, like vehicle loans, are a type of secured debt in which the property is used as collateral. Depending on your income, financial status, and credit rating, home loan lenders may give you up to R1 million.
Home loans are generally repaid over a period of up to 30 years. The 20-year plan is preferred by South Africans because to its more fair repayment periods.
This type of loan may have a fixed or variable interest rate. The average interest rate on a home loan in South Africa is 10%, which means that if you choose a fixed interest rate loan, you will pay this percentage until the loan is paid off. Variable interest rates, on the other hand, fluctuate in tandem with the prime rate.
Because this scenario is typically more advantageous to borrowers, more people choose for this form of loan term.
Unsecured Loans
Unsecured loans do not need the use of any type of collateral in order to be granted, making them more accessible to individuals who need finances in the shortest period of time. Applicants must, however, pay higher interest rates since creditors take a bigger risk in approving this type of loan.
Unsecured debt comprises the following types of loans:
01. Student Loans
This type of finance is available from all banks in South Africa, as well as government agencies such as the National Student Financial Aid Scheme (NSFAS). As a consequence, more students will be able to complete their education till graduation.
This type of loan must be returned once the recipient has completed his or her studies. However, monthly payments to repay the interest on the loan are still required during the years of study.
Graduates are given a three to six-month grace period after graduation to look for job before the lender begins collecting payments.
02. Short-term Loans
According to financial experts, this type of loan should only be used in emergency cases. Because this type of loan presents lenders with a greater risk than any other personal loan, its interest rates are much higher than those of other lending products.
Payday loans have high interest rates and extra fees. As a result, in an emergency, this should only be utilized as a last resort. In most circumstances, you’ll be expected to repay 30-50 percent of the loan amount.
Payday loans are straightforward and fast to obtain, taking only a few minutes to a few hours from the moment you submit your loan request to the time you receive the results.
Most lenders of this type of loan do not undertake credit checks in order to minimize processing time. This is also why this credit is offered to people who have been barred or have a poor credit score. These loans are normally due within a month and are immediately taken from your bank account.
03. Debt Consolidation Loan
Debt consolidation loans are a type of credit designed for those who are having trouble repaying many obligations, and they consolidate all of your previous debts into a single substantial payment that is easier to manage and clear.
Individuals who are having difficulty paying their financial obligations from many lenders may be able to combine their loans. A debt consolidation lender pays off all of your outstanding debts, and you return the single one under new, simpler and more flexible terms and rates.