Your Complete Guide to Personal Loans in South Africa
What is a personal loan?
Financial emergencies can be inevitable. They can strike at any given time. There are times when you need money to take care of expenses like medical bills, home renovation, tuition fees, or transportation, and your personal finance may not be enough to satisfy the need. Well, there’s light at the end of the tunnel; you can easily take out a personal loan to cover such expenses. This is a loan that can get you relatively quick cash to settle your diverse financial emergencies.
How much can I borrow?
You can get a loan ranging between R1,000 and R200,000 depending on factors such as your income and credit score, which will be explained further in this text.
What are the repayment terms?
Upon approval of the loan, you’ll be required to pay the loan in monthly instalments over an agreed period with interest rates set by the lender. The maximum repayment period allowed for personal loans is 72 months.
What can I use my personal loan for?
There are quite a number of ways that you can put your personal loan into use. The following are some of the common ways:
- Debt consolidation
If you’re having multiple lines of credit or existing loans that attract higher interest rates, you can take an unsecured personal loan to consolidate these loans into a single loan for easy management and relatively lower interest rate.
- Unexpected and major expenses
Some expenses can be involuntary, and some can hardly wait. A personal loan could come in handy to help you take care of such unexpected major expenses.
- Starting or expanding a business
If your personal finance is not enough to jumpstart your startup or expand your business, you can consider taking an unsecured loan to kick you off, provided it’s sufficient.
Long, mid and short terms personal loans (what is the difference?)
Personal loans vary depending on the term, which determines the maximum possible amount you can qualify. Long-term personal loans are the loans that your lender will allow you to repay over a relatively long period, usually over 10 years. Most of these loans require you to have some valuable collateral.
Mid-term loans are loans going up to R30,000, and whose repayment period can go up to 10 years. Short-term loans, on the other hand, are loans that you’re to repay within a short period of time, perhaps within the first three years. They also tend to attract higher rates than mid and long term loans.
Personal loan interest rates & fees
All South African lenders have to adhere to responsible lending as depicted in the National Credit Act. The interest rates for personal loans are fairly high owing to the fact that most are unsecured. The rates are usually set depending on your credit risk, meaning higher risks attract higher rates.
Principal and interest are the typical payments to be made, just like with any other loan. However, there are other common fees explained below:
This is the fee that you’re required to pay to help cover the costs to be incurred when processing your request. Depending on your lender, you can pay the fee upfront, or it will be deducted upon approval. Whatever amount deducted, the repayment will still be based on the original amount requested.
You may decide to repay your loan ahead of schedule for a number of reasons. In such a case, some lenders may ask you to pay a certain amount according to their terms.
Late payment fee
You may fail to repay the loan on time, and you may be asked to pay a late payment fee, depending on the lender’s regulations.
What is a credit score?
This is basically a numerical value from 0 to 999 that helps give the lender an idea of your likeliness to repay your loan on time. It contains information such as your payment history, amounts owed, account inquiries, types of credit in use, and the length of your credit history.
When submitting an online loan application to a lender, your credit score will be used to determine whether or not it will be approved. A good and excellent credit score means higher chances of loan request approval.
How to check your credit score rating
There are several platforms that you can visit today to check your credit score. Some of these websites include Go Credit Reports, TransUnion, Experien, Clear Score, and My Credit Status.
Your credit score is a summary of your financial decisions determined by a credit bureau depending on your report on the way you pay bills, debt owed, and employment circumstances.
If you’re looking for a platform with the lowest interest rates, you can compare online loans on our website to help you make informed decisions. You’ll find detailed information on a number of personal loan lenders around you that you can contact today.
Online personal loan applications
Applying for a personal loan is super easy. All you need to do is to visit your lender’s website and fill out the credit application form. This will provide the lender with your personal details necessary for performing a credit check to determine if you’ll be approved. Should you get approved, the lender will send a set of documents for you to sign and fax or email them back to your sender. The loan will then be processed and you’ll receive the credit advice as soon as possible, perhaps within a few hours.
To qualify for the loan, you need to present proof of residence (South African ID), income (payslip), and a good or excellent credit score. You should also confirm if your lender is registered with NCR to ensure guaranteed borrower rights.
Secured and Unsecured loans (what is the difference and which is better?)
The main difference between these loans is with the collateral; secured loans require some collateral to be put up as security should you fail to repay your loan. There’s a potential for higher limits and more convenient terms with this kind as well, making them a better option to go for. Unsecured loans, on the other hand, require no collateral but can attract higher interests and less convenient terms.
Personal Loans from P2P Lenders
P2P loans basically refer to loans you can get from another person or people but not from common traditional lenders like financial institutions and credit unions. Approval and terms of such loans can be more convenient than with traditional bank loans. Most of these loans do not require some collateral to be considered, but not all.
Credit insurance (what is it?)
There are some circumstances, such as termination of employment, disability, or even death, that could render you unable to repay your outstanding debt. This is where credit insurance comes in to protect you against such insolvency.
Personal loan amortization and repayment
Loan amortization refers to scheduled periodic payments applicable to both principal and interest. The relevant interest expense for the agreed period is first paid off, reducing the principal in the process. This means that the interest will be decreasing depending on the most recent ending loan balance. Inversely, the principal portion of the payment will constantly be increasing in the process.
An amortization schedule will help you break down your loan determine the amount you’re to pay in principal and interest over a certain period of time. You’ll be required to pay back the money in monthly instalments over the period agreed with your lender.
Defaulting in loan repayment could result in unpleasant penalties that could follow. We will contact you via phone, email, or SMS before handing you over to collections which may list you on credit bureaus, who will alter your credit score. If we will not have received the payment by this stage, we will consult with attorneys who will try and convince you to pay back the loan. Failure to which, you’ll be arraigned in court at your expense where you’ll risk losing your assets.
Benefits of personal loans
- Easy application and management
Personal loans are usually easy to apply, and their approval is faster, provided you meet all the lender’s requirements – proof of ID, income, and address. Management of these loans is also much easier when funded as a single loan in a lump sum as compared to several credit cards with different spending limits.
- No collateral required
You need a loan but have no collateral to put up? Don’t worry; you can apply for an unsecured loan and take care of your emergency as soon as possible.
- Higher loan limit potential
With personal loans, you’ll get to enjoy higher loan limit potential than you could with credit cards. Plus, personal loans tend to attract significantly lower interest rates as compared to credit cards.
- Predictable repayment schedule
When your loan application is approved, you’ll be able to know precisely the total interest cost for the loan, what amount you’re required to repay every month, and the number of months you’ll be making the payments.
- Usage variety
These loans give you the freedom of a variety of usage whether you want to use it to renovate your home, pay your fees, or debt consolidation, among other uses.
Frequently asked questions about personal loans
➧ Where is the best place to get a personal loan in South Africa?
Personal loans in South Africa were given by the big banks to their customer. The banks would look at a lot of criteria before approving a loan. The loan would take a week at the least to be approved. This was until online loan application firms like Lime24 entered the market. You can now apply for a personal loan online with approval taking a few minutes. You must have a South African ID, a South African bank account and be employed with a monthly salary being paid into your account.
➧ How to settle a personal loan?
When you apply for a loan, you give your banking details to the loan provider so that they can deposit your personal loan into your bank account. It is from this bank account that your monthly instalments will be deducted until the full loan repayments are made as per your agreement with the personal loan provider. Should you feel you would want to pay off your loan earlier, contact the provider so that they can give you bank details and you can transfer the extra amount of the loan without incurring any penalties.
➧ How to apply for a personal loan?
Applying for a personal loan online can be done using the personal loan app on the site. Just move the sliders on the online loan app to suit your requirements. After you press apply, the system will then prompt you through the application process prompting you to enter your details. Once this is done, your loan will be assessed and a result given to you within five minutes.
➧ When will my personal loan be approved?
With providers like lime24, your personal loan will be approved within a matter of minutes. When you think, “I need a loan”, all you have to do is log onto the website, follow the prompts for the loan application and once this is submitted to Lime24, it will take one minute for your tariff to be assigned. As soon as the tariff is approved, your loan is approved and just awaits your signature before the amount will be disbursed to you.
➧ What is a pre-approved personal loan?
Sometimes, personal loan providers will have your details from their partner organisations like banks, which you have allowed to share your details. Based on your information they have at hand they have already approved a loan with a particular amount for you. What is required is just you, to accept the loan offer and sign the contract so funds can be transferred to you.