As per the latest statistics, around 40,000 people search and apply for a personal loan in South Africa. If you are one of them, clearly you are not alone. But do you have a complete guide about a personal loan that will help you navigate your search and application?
Well, in this blog post, we give you a complete rundown of personal loan in South Africa. So, let’s get started, shall we?
Personal loan: What is it?
When you borrow money from a financial institution to cover any financial gaps, it is a personal loan. Since you have borrowed money from the lender, you ought to pay it back. Following are the general features of a personal loan:
- You can get a personal loan for an amount between R2, 000 to R300, 000.
- You need to pay back the money in a span of 1 month to 84 months (7 years)
- You can use the funds for several general purposes such as covering wedding expenses, home renovation, buying a car, debt consolidation, and more.
Standard terms: Definition
- Loan terms:
- Principal Amount: This is the base amount that you borrow from the lender. This amount does not include any interest charges or any other fees.
- Term of Loan: This is the time in which you need to pay back the loan amount. For a personal loan, the loan term is between 1 month to 84 months (7 years).
- Interest: This is the amount charged by lenders on the borrowed amount. This can vary based on the lender as it is decided by the lender.
- Monthly Repayment: This is the amount of money you pay back to the lender monthly. This amount is meant to cover your principal amount and interest rates charged by the lender.
- APR: This is the annual percentage rate also known as the comparison rates. This rate includes all the other debt charges and interest rates.
- Terms for your situation
- Credit History: This is the history of all different types of loans you might have taken from the lender. It also shows how you made your previous repayments. In South Africa, you are entitled to have one complete credit report for free.
- Credit Score: This score is evaluated from your credit history. The score indicates how good you are at repaying your debt. A credit score of 800 and above indicates that the lender can trust you for repayment of the loan. However, a credit score below 579 is not a good indicator. It shows the lender you can default on the loan repayment.
- Drawdown: Once your application is approved, the lender will draw down the loan amount in your account. You can start using your loan amount as you want.
- Defaulting: So, if you fail to pay your monthly repayment amount, you have defaulted on your loan. Defaulting can lead to a poor credit score.
Personal loan: How do they work?
Following are the steps generally involved in applying for personal loans in South Africa:
- Compare Loans: There are different types of personal loan plans offered by lenders. Each plan has different terms and conditions. So, you must compare each credit plan before you choose the one that suits you.
- Checking Qualification Requirements: Once you have finalized a loan plan that suits your needs and budget, you must ensure that you fulfil all the eligibility criteria such as minimum age or proof of income.
- Contacting the Lender and Applying for a Loan: Once you fulfil the requirements, you can contact the lender and apply for loan online or going to the nearest branch office.
- Approval and Agreement Creation: Once your application is approved, the lender will make a loan offer. Once you accept the loan offer, an agreement will be created that will have the terms and conditions for the loan repayment. Once agreed and signed, the lender will draw down the loan amount. You can start using the money for your needs.
- Repayment: Usually, you must make monthly repayments to the lender. The amount will depend on your credit amount and interest rates. Make sure not to default on the repayment to avoid penalties.
Personal loan: What are the types?
Credit providers who are registered to give personal loan offer to people in South Africa provide different types of personal loans. The type you choose depends on your requirements and if and how you will repay it.
Following are the different types of personal loan:
- Unsecured Loan: This type of personal loan doesn’t need any type of guarantee however, it comes with higher interest rates.
- Secured Loan: This type of personal loan needs an asset or property as a collateral guarantee. The loan has lower interest rates and other perks too.
- Debt Consolidation: If you want to repay all your smaller loan amounts in one go, a personal loan can be used as a debt consolidation loan. You will now have just a single account for a loan.
- Student Loans: A type of personal loan, this is used to pay for your education and living expenses.
- Lines of Credit: Just like credit cards, this type of personal loan comes with a maximum credit limit. The repayment depends on how much credit you have used.
- Overdraft: When you withdraw a small amount of money even when your bank balance is low, this is known as an overdraft loan.
Personal loan: Minimum requirements
- Self-employed or employed
- Minimum 18 years of age
- Must have a regular monthly income
- Must have a South African residence permit or citizenship
Personal loan: Documentation
- Valid ID issued by the South African government
- Residence proof
- Payslips for the past 3 months as proof of income
- When you are taking a secured personal loan, don’t forget to give ownership proof for the asset you are using collateral.
So, now you know the basics of personal loans and how you can apply for them. To know more about the latest offers on personal and short term loan, don’t forget to check out our website Snappy Loan.
On our online platform, you can search, compare, review, and apply for a loan online. With just a few clicks, you will be approved for a loan offer and you can get the loan amount in a short while. Make sure to repay the loan amount without defaulting to avoid penalties. Visit our website to know more!