your guide to personal loans

It is a fact that prices grow at a faster rate than the income of South Africans. As a result, more and more people resort to borrowing. No matter whether you need extra cash to pay your telephone bill or for car repair, you will certainly resort to one of the main personal loans available.

Getting a Personal Loan

It is now easier than ever before to take out money. Many lenders in South Africa offer online loans to customers. All the terms and conditions are available on the lender's website. You simply need to fill out a short online application form with your personal details including name, address and ID number and submit it. The lender will use these details to run a credit check on you.

If your credit record is good, the credit provider will email you the lending agreement and other documents. Your job is to print all documents, sign them and fax them to the lender. It is important to note that registered credit providers offering their products online comply with the rules and regulations of the National Credit Act fully just like their counterparts operating from a physical location.

Often, it takes a few days for the granted funds to reach your account. At the same time, there are some lenders who guarantee receipt of the money within 24 hours and even ones who promise that the money will be in your account on the same day. Undoubtedly, the online loans are among the most convenient which you can find in South Africa. However, they are among the most expensive as well. You will have to pay a considerable price for borrowing the funds.

Consumers in South Africa enjoy one of the highest levels of protection in the world when it comes to using credit products. Their rights are protected by the National Credit Act (NCA) which sets maximum limit on the interest rates and fees charged by lenders. Furthermore, lenders are legally required to disclose all charges and loan features to the potential customer before the signing of the loan agreement. If you are not satisfied with what is on offer, you have the full right to reject the deal. You can readily shop around and compare different credit products to find the best one for you.

Planning for the future is crucial when you borrow money. You have to be perfectly certain that you will be comfortable with the repayment of the loan given your current income and expenses. It is certainly wise to provide for unforeseen circumstances such as decrease in income and increase in expenses. You should still be able to repay your debt without struggling. You should do the math and make provisions in advance to be on the safe side.

The National Credit Acts stipulates that lenders have to evaluate the creditworthiness of each loan applicant based on their net income, gross income and disposable income. A person who has very high monthly expenses or a good amount of debt already is much less likely to qualify. Basically, the lender is obliged to confirm affordability even if the loan applicant has not made proper plan and provisions.

The required level of affordability varies considerably from one type of loan to another. For a home loan, for example, the monthly payment should not exceed 33% of the applicant's monthly income. When it comes to personal loans, this percentage is much lower given that their size is smaller as well. However, in the case of a personal loan, the lender sets the maximum monthly payment limit. It is not stipulated by the NCA.

It pays off to be honest about your income and debt when you are applying for a personal loan. The lender will run a thorough check on you so even if you have hidden some information or provided false details, they will still learn the truth. A check with the credit bureaus will reveal whether you have status of responsible borrower, borrower at credit risk or slow payer. The lender will make a decision based on this check and on your disposable income.

Types of Personal Loans

Each personal loan has a repayment term. The repayment term is based on the amount of money borrowed and on the method of repayment. The term is clearly set in the loan agreement. There are several types of personal loans based on the repayment term.

Short to mid term loans - These can be loans and lines of credit such as credit cards and store cards. Car loans and overdrafts also fall into this category. The repayment term ranges from a month to 10 years in most cases.

Currently, you can borrow as much as R30 000 with an unsecured personal loan. The granted amount will depend on your income and your ability to repay the loan. At the same time, you can expect the interest rate to be fairly high due to the fact that the loan is not backed by an asset. The interest rate will be determined based on your credit history as well. Individuals with credit record which has some blemishes in it may have to pay annual interest exceeding 40%.

Long term loans - These loans typically have a repayment term of 10 or more years. They are for larger amounts as well. Home equity loans and debt consolidation loans can also fall into this category even through they are directly related to mortgages. These are secured loans backed by an asset, which the lender is legally allowed to repossess in case of default on the repayment of the loan. At present, more and more secured loans are being introduced to the South African market.

Overall, a personal loan is a good choice when you have sufficiently high disposable income and need a large amount of cash now for paying unexpected expenses or for financing a purchase. If you have problems with repaying existing debt, this type of loan is not the best solution given that it comes with a considerably high interest rate. The best way to get out of this situation is to adopt a debt management program or to take out a debt consolidation loan.