Personal loans are amounts that you borrow from a bank or lending agency or an investment broker for whatever need you have. People often apply for personal loans for purposes like education, going on a family vacation trip, medical expenses, home repairs, bill payments and debt consolidation.
Depending on the bank or institution, you can borrow anywhere from R1000 to R150000 through personal loans. The amount you are eligible to apply for usually depends on the lender’s guidelines and your income and credit history.
Types of Personal Loans
There are two types of personal loans: secured and unsecured.
- Secured Personal Loans
This type of loan has a very low interest rate and comes with a flexible repayment term. People applying for secured personal loans will be asked to put forth some form of guarantee in order for the loan to be approved. This type of loan is usually secured against the borrower’s property or home and if he defaults on his payments, then the lender will have the right to liquidate his assets in order to repay any outstanding amount.
- Unsecured personal loans
Unlike secured personal loans, unsecured personal loans do not require any form of security in order for the loan application to be approved. This type of loan however tends to have a higher interest rate because it is unsecured and it is usually given to borrowers who have previous lending history with the lender and who are asking to borrow only small amounts.
Personal loans in South Africa, and indeed in anywhere else in the world, come with Interest rates. These interest rates will mean that you will have to pay back the bank or lending institution for more than the amount you initially borrowed. Interest rates are charged due to the high risk lenders take when granting loans.
Interest rates are particularly higher on unsecured personal loans because of the lack of collateral. Because of this, it is not a good idea to apply for an unsecured personal loan and use the borrowed money for unimportant things. Unsecured personal loans should only be availed of in case of emergency.
There are three kinds of unsecured personal loan interest rates:
- Adjustable - interest rate is linked to the prime interest rate and is expected to fluctuate with the economy.
- Fixed rate - interest rate and monthly repayments remain the same throughout the life of the loan.
- Balloon - a set schedule dictates how the interest on the loan is repaid. At the end of the schedule, a balloon figure for the capital amount is repaid in full.
Personal Loans – How to Apply
For you to be able to get a personal loan from one of the leading South African banks and other authorized financial institutions in SA, there are some minimum requirements that must be met. You can get a personal loan in South Africa if:
- You are a South African citizen and you are at least 18 years of age.
- You have a regular source of income and you have proof of income or employment.
- If you earn at least R2000 a month.
- If you have a South African Bank account into which your salary is directly deposited.
- If you have a valid SA identity book.
Aside from these basic requirements, you must also have a good credit record or at least you are not blacklisted. Personal loans are not the type of loan for people who are blacklisted and in need of debt consolidation.
Personal loans always come with terms and conditions so you must take care to read and understand these before you accept these terms.
When applying for a personal loan, there are some things that you must take into consideration. Remember, taking out a loan can greatly impact your credit rating and your future ability to get financial assistance. You have to be careful when taking out loans and keep the following in mind:
- Always compare personal loan interest rates. There are many banks in SA that offer personal loans and they also offer different interest rates. Shop around to find out which lending institution can give you the best offers.
- Before applying for a loan, you have to check your current credit standing. You have to make sure that you have a clean credit record and any mistakes on your credit report are corrected. There are ways to check your credit report online i.e. via TransUnion but it is paid. You can look for ways to check your credit standing for free online.
- Always do a background check of the lending company you are planning to deal with and ensure that they comply with the guidelines and regulations set by the National Credit Regulator (NCR) and National Credit Act (NCA).
- You should also ensure that you will be able to afford the loan repayment with your budget. It is easy enough to get approved for a personal loan but the repayment process can be quite a burden and will take years to complete.
Where to Apply for Personal Loans in South Africa
There are a number of banks in SA that offer personal loans to citizens.
You can borrow from R3000 to R150000 with repayment periods from 12 to 84 months. Their fixed rate personal loans allow borrowers to pay equal monthly payments for up to 60 months. Their variable rate personal loans are up to 84 months to pay. Individual borrowers’ risk profiles determine interest rate. There are no early settlement penalties for early repayment.
You can apply for a loan from R1000 to R120000 in cash which will be deposited into your salary account, a Nedbank account is not necessary. Loan can be repaid over 24, 36, 48 or 60 months and repayment will be debited directly from your bank account. Borrowers can qualify for a loan after Nedbank determines that you can meet all your financial commitments. You can apply by visiting the nearest branch or by applying online from their official site.
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First National bank (FNB)
You can apply for loans up to R100000 and they offer flexible repayment periods from 1 to 60 months. If you bank with FNB then you may qualify for better rates and you can use your FNB loan to consolidate your debts. Installment amount remains the same (fixed) even if interest rates go up.
The bank offers two types of personal loans: Personal Term Loan and Revolving Credit Plan. With a Personal Term Loan, you may borrow R500 to R40000 and the amount you qualify for depends on your income and your credit risk. Credit risk is determined by the bank through the information provided by credit bureaus. Minimum repayment term is 3 to 42 months. The Revolving Credit Plan lets you get a loan between R6000 and R120000 depending on your risk profile and ability to can meet your financial commitments. Once 15% of the loan is repaid, you may borrow again up to your original loan amount and your repayments will not change.
In these present times, applying for loans is almost completely unavoidable. Before applying for personal loans, you must ask yourself why you have to do this. Knowing why you need a personal loan can help the bank consultant to offer you a type of loan that is customized for your needs. This will also help you decide which monthly repayment plan suits your budget better.
