Deciding whether to take up a short-term loan or not is important, but equally important is choosing the correct financial institution for the correct type of loan. The reason for this is that short-term loans take various forms and are offered by various financial institutions. Before you can decide which loan and financial institution you want to opt for, it is critically important that you research and study the fine print as well as the terms and conditions of each. Know from the outset that as with all financial services and products, not all institutions and products are equal and you need to be informed of the differences. Don’t see a short-term loan as the easy way out because it is readily available and doesn’t require much effort from your side. If any other product or service can equally fulfil your needs, then explore such avenues first before finally deciding that a short-term loan is the best possible option.
The value of consulting a professional and independent financial advisor about your financial needs (including why you need a short-term loan) cannot be overemphasised. These expert individuals are well versed in all financial products and services that are available. As such, they can best advise you on the strong and weak points of short term loans. They can also explain what services and products are on offer from the various financial insitutions.
In general, banks’ short-term loans are mostly secured loans. Micro lenders, on the other hand, also specialise in short-term (cash) loans, as well as so-called ‘payday loans’. The latter is aimed at borrowers who need some money immediately to tide them over until the next payday but payday is too far away. They are essentially a credit advance on your salary. These loans as well as cash loans can also be unsecured loans – the borrower doesn’t have to provide any documentation in case he or she, for whatever reason, default on monthly repayments.
Advertisements about short-term loans on national television and even in your local grocery shop ensure that the temptation to part with your hard-earned cash is always there. “Apply online and get a response in seconds. Cash deposited in your account in one hour”, reads the advertisement of a provider of instant, short-term loans in Durban. “We pay cash for goods”, reads the message of another, while another advertises its competitive advantage as ‘Loans for those who are blacklisted; no credit check.”
Arming yourself with as much information as possible will empower you to distinguish between providers and their offerings and to make an informed decision, no matter where you live, should you ever need to make use of a provider for a short-term loan.
As is the case in most of the major South African cities, a search for instant loans in Durban renders its share of providers of both secured and unsecured loans, offered by well-known financial institutions such as banks and not-so-well-known micro lenders, some providing short-term loans for only a few days. There is also a fair share of individuals who make use of the Internet to advertise their one-man-bands for quick and easy loans, which is – according the advertisement – paperless, and feedback is provided within minutes. ‘Blacklisted welcome’, many such advertisements proclaim.
In Durban, as in other major cities, there are providers that specialise in lending money to blacklisted customers. Following the economic downturn in 2008, banks are reluctant to provide loans to individuals with a bad credit, making it very difficult for such individuals to secure any loaned, especially the instant and short-term kind that could tide them over in the event of unexpected financial difficulty. What makes it worse, is that many such customers are blacklisted by no doing of their own, but their bad credit record makes it impossible to secure a loan.
Loans to blacklisted individuals especially can be described as a double-edged sword, as the financial institutions that offer these types of loans can (and often do!) charge a hefty interest rate in return for accepting the risk of lending money to individuals who have been blacklisted. Desperate to find and secure a loan, such individuals usually don’t mind paying the loaded interest rates as it’s the only way they can meet their short-term financial needs and get out of financial difficulty, even if just temporarily.
Financial institutions that offer instant and short-term loans to blacklisted individuals warn such borrowers that they should only take out an instant, short-term or unsecured loan if it’s absolutely necessary and – this is critical – to ensure they can repay it. They also recommend that funds be used as originally intended.
Some of these providers guide potential customers in calculating the affordability of the amount that they need by providing them with an online calculator. Punching in the amount that they would like to borrow and the number of days over which they would like to spread the repayments, the calculator gives an answer of a total repayment amount. While this is a good starting point, it is still only a guide. As such, it should not be used to base any decisions on and as always in matters financial, a final decision on a short-term or instant loan should only be taken once you have gathered sufficient information on the financial institution or loan provider, interest rates charged, repayment period and premiums and critically reviewing these against what you are willing to pay or can afford.
While there are some providers who require very little, if any, supporting documents, a copy of your identity document, latest payslip (a steady income is a requirement for almost all short-term loans) will be required. Once you have done some research and you have a list of providers that can offer you the amount you need fast and at the lowest commission and interest rates, you might want to use an online ‘comparative’ website service to guide you in the case of you being uncertain whether your chosen provider is reliable and/or accredited with the National Credit Regulator (NCR); the comparative website will present the results of approved and reliable lenders only.
The Marikana tragedy and the African Bank saga have put short-term loans, especially the risks of unsecured lending for the economy, firmly in the spotlight. South African consumers sat up and took note of these unfortunate incidences that highlighted the fact that unsecured lending – however well and attractively packaged – has to be approached with extreme caution. A short-term loan should always only be considered after extensive research and exploring other available options with an independent financial advisor, who after such discussions point to a short-term loan as the best solution.