manage your new loan

When looking at getting finance, the market for loans is quite plentiful. With loans for any lifestyle, and wallet, the banks and loan facilities in South Africa offer a comprehensive range of personal loans and finance solutions that can be adapted to suit your changing needs and circumstances. Whether you would like to go on that dream vacation, buy something special for your home, have an unexpected expense or just need the reassurance of knowing you can cover your everyday expenses, there is a loan out there for you. How you manage your loan however is the tricky part.

1. Know what loan you need

A few of the most popular and easily accessible loans on the market today are:

  • Express loans - short-term loans with repayment terms of up to 6 months, easily accessible through banks or online, and approved within an hour.
  • Personal loans - need extra cash fast? A personal loan will help you with that dream holiday, wedding payments or to buy that TV you have been dreaming about
  • Revolving loans - you can access additional funds whenever you need them without the hassle of having to reapply each time
  • Overdraft facilities – will give you peace of mind with the reassurance of knowing you can cover your everyday expenses and those unexpected costs that come along from your existing bank account
  • Instant loans - Access to cash – instantly! Immediate loan approval with the money in your account in minutes! There are hundreds of online instant loan offers on the market today.

2. Before taking the plunge

Key information when considering a new loan, is taking yourself through a step by step process to understand the loan, and how to manage it. Before you begin the loan hunt, you need to review your finances. Setting out your monthly income and outgoings is the first step towards improving your financial situation.  Once you have a clear and realistic picture of your financial situation, you may be able to take action to make immediate improvements. 

3. Improve your chances

Manage your spending

  • Keep a ‘spend diary’ for the month. You may be surprised at how some small regular items can add up to a substantial monthly amount. If they’re optional, you could save that amount by cutting back here.
  • Maximize your income
  • Check that you are getting all the tax credits and reliefs to which you are entitled (e.g. Tax Relief at Source, medical and dental expenses)
  • Explore other ways of bringing in additional income, for example renting out a room or taking on a part-time job.

4. Have good credit

Having a good credit score is the key to getting finance from any institute offering loans, means that you pay your bills on time and you repay your loans as promised. A good credit record will enable you to take out a loan if you want to buy a car or house or start a business someday. Many employers check credit reports, so good credit may even help you land your dream job one day.

To build up your credit rating you need to:

  • Pay basic expenses, such as rent and utilities, on time.
  • Make loan and credit card payments on time.
  • Pay loans before you spend money on other purchases.
  • Apply only for the credit you need. (If you apply too often, lenders might think you are in financial trouble.)
  • Do not bounce checks.
  • Credit-reporting agencies keep track of your debt and how you pay your bills. Often, they provide this information to businesses when you apply for a loan, apply for a job, or look for an apartment.

5. Set a bigger goal

If you are on the market for a new home, you will have to apply for a home loan to ensure that your journey to home ownership is a smooth one. Here are some guidelines to help you every step of the way.

  • Know what you want - Do some house hunting homework first! Know what size suits your needs and give good consideration to your choice of area. Think about accessibility to work, public transport, schooling and other amenities. Remember location really matters!
  • Banking on a budget - A home loan for first time buyers can be difficult to understand, so contact a Home Loans consultant or visit your bank. You could go online to do an affordability assessment to find out exactly how much credit you can access for your new home.
  • Putting down a deposit - You may need to put some of your own money on the table before you can buy a house. Depending on your financial situation, some home loan products allow you to qualify for larger home loans without paying a deposit.
  • The Right Package- Home loan facilities in South Africa offer a wide range of financial products tailored to meet your individual requirements. It's important to choose a Home Loan package that works for you.
  • Plan for additional costs - Be aware of other once-off costs that you will have to pay, over and above the deposit. These include initiation and administration fees, legal costs, bond registration fees and VAT/Transfer Duty.
  • Begin the search - A number of factors to consider when determining the initial amount to offer on a home is the sale price of similar houses in the neighbourhood for the past year or so will give you a good estimate of current market value. An estate agent will assist you with this information.  The general condition of the house is also an important pricing factor. Information concerning things that need to be done in or around the building must be taken into consideration when making a price offer. 
  • Know what you are buying- View as many properties as possible. Make comparisons. Make a short list. Sleep over the short list. Do not guess or assume anything. Ask the seller or estate agent as many questions as you can until you are totally satisfied. Viewing the selected property several times will assist in final decision making. It is your responsibility to ensure that a prospective home will not require excessive future maintenance. You are allowed to question the reason for selling and the number of other sales taking place in the area.

6. Taking things a step further

Once a decision has been made! It's now time to think about signing an offer to purchase with the seller and to complete your home loans application. Contact your bank, or apply online at most bond and home loan lender facilities.

Make sure you have the following documents on hand before meeting with your bank:

  • Proof of income 
  • A South African bar-coded or Smart Card identification document 
  • Copy of offer to purchase 
  • Proof of current residential address (municipal account, Telkom account or valid TV licence). 
  • Salary earners: most recent salary slip or banking statement for the last 3 months, a letter from your employer which will be followed by a telephone confirmation to your employer. 

Once the bank has received all the relevant documentation, the approval process begins. The bank will need to do a valuation of the property being purchased to ensure that it is of value and that the bank is willing to finance it. The home loan approval process can only be efficient if all the correct documents are provided. The estate agent will assist you in completing an Offer to Purchase. This makes the offer formal. It includes an offer price, closing date and financing information.

7. Manage your loan from day one

Once approved, the bank instructs the bond attorney to begin registering the bond.  The seller will advise the Transferring Attorney to transfer the property. Title deeds and cancellation figures are requested from the bank currently holding the bond. A rate clearance is requested from the local authorities/municipality.   The Bond Attorney contacts the transferring attorney and advises the amount available for guarantees. They then request the draft transfer deed and guarantee requirements.  The cancellation attorney is requested to cancel the seller's bond on receipt of a guarantee for the outstanding amount.  Once the transfer attorney has received the title deed and cancellation figures, the buyer and the seller sign the transfer documents. The buyer pays the transfers costs to the Transferring Attorney.  The Bond Attorney prepares the bond documents and the buyer signs these documents and pays the cost.  The Bond Attorney lodges the documents at the deeds office.  The deeds office receives the documentation and checks it before being registered. 

This process can take about three months from the date of approval. Now that the bond is approved and you ready to move into your new home, the next level is to manage your loan! To do this you have to ensure your bond payments on time. It is vital that you do not miss a single monthly repayment, as the interest owing on the loan will increase and you'll end up paying more than necessary. Debit orders are a good way of preventing late payments. If you have trouble making payments, inform the bank as soon as possible. By boosting your monthly instalments, you can make huge savings on interest and pay off your Home Loan in double-quick time. Live within your budget. Prepare a monthly budget and stick to it. You should monitor your spending every month and evaluate your progress in meeting your financial goals.

8. Let your current loan take you further

Further down the line with the nature of property to increase in value over time. This means that if you’ve owned your home for a number of years, the likelihood is that it’s worth more now than it was when you purchased it. When you refinance your home, you’re securing a new mortgage for your property based upon its current value, and not on the amount it was valued at when you took out your initial home loan. This gives you access to equity that you can use to improve your standard of living or strengthen your financial standing.

If you owe R500 000 on your home loan, but your home is worth R800 000, there’s a R300 000 difference in value. This is known as “equity”. Through home refinancing, you can apply to access this equity. Basically, equity is the difference in value between what you owe on an asset, and the value of that asset. If you refinance your home for its current value, you could access the equity accumulated in your property. Essentially, it’s a line of credit being extended by your lender, and thus you will pay interest on it. However, if you secure super low interest rates, it offers a valuable means of improving your financing position or paying for major or unavoidable expenses. 

Why would you refinance your home? There are numerous reasons for refinancing property in South Africa. First and foremost, individuals who refinance their homes usually wish to reduce monthly costs, and home refinancing can go a long way towards achieving this goal. Refinancing your home at a lower rate could translate into savings of several hundred rands – if not more – each month, and an overall saving of tens or hundreds of thousands of rands over the life of the loan.

9. Study money

Another popular loan on the market today are student loans.  Managing a student loan is slightly different to your average home loan. Student loans were developed to help poor or previously disadvantaged student’s access higher education.

10. Be loan wise

Unfortunately for many students the only way into a higher education institution is through a student loan contract. Student looking for loans to further their studies may fall victim to fraud and scams whilst looking for that quick easy loan. A few words of advice:

  • Don’t fall for guarantees or claims that someone has information you can’t get anywhere else.
  • Know that legitimate scholarships never charge fees and the application information is available to everyone.
  • Look for valid contact information on websites and publications, such as active telephone numbers and actual mailing addresses (not just P.O. boxes).
  • Keep in mind that private loans usually have higher variable interest rates than government loans and may go into repayment while you are still in school. Student loans usually have fixed rates and you do not pay them back while you are a student.
  • You must understand that a student loan must be repaid. If you don’t repay it, it will hurt your credit record.
  • If you default on a student loan, the consequences may be even more severe and include garnishment of your wages or legal action. A poor credit record will make it difficult—even impossible—to get a loan in the future to buy a car or a house, and it could negatively affect your chances of getting a job.

11. If you slip up

If you find yourself in a predicament, where you cannot pay your loan instalment, or haven’t done so over a period of time; contact your creditor and explain your financial situation. In many cases, the creditor will set up a temporary hardship payment plan until you get back on your feet. Never stop paying and never avoid collection calls. Your debt can follow you all the way to court. Consider seeking help from a reputable non-profit counselling service. A counsellor can help you rejigger your household budget and set up payment plans with creditors.

12. Money management

So when in the market for your new loan, be informed of all the small print, and not just the amount deposited into your bank account. It is in your best interest to know how to manage your loan throughout the entire payment time span.  Keeping your credit rating up and your debt problems low is key!