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Pros and Cons of Taking Out a Loan in South Africa

In our previous blogs, you might have read a lot about different types of loans, lenders and banks, their terms and conditions, the best way to apply for loan online, and more such information. But we never talked about the costs of borrowing money in South Africa. 

Understanding the costs of loans in South Africa is of the utmost importance to ensure that you are educated on the pros and cons of taking out a loan. As a country that is submerged in debt, having a complete understanding of the consequences of taking out a loan will be beneficial. This will help you make an informed decision, be financially responsible and take out a loan only when you need it. 

In this article, we will tell you the pros and cons of taking out a loan in South Africa. 

Pros of Taking out a loan

  • Borrow large amounts

The biggest benefit of taking out a loan is that you can borrow larger amounts. This is to compare with the amounts you can take out when you use a credit card. Credit cards usually have an upper limit to spend that will increase based on your spending and payback habits. This usually takes time.

However, when you apply for a loan, you can get approval for a large amount in a short time, and you get the money in a lump sum which can be beneficial when you are in a sticky situation financially. 

  • Spend money as you desire

When you take out a loan, you have the freedom to spend the money as you desire. For example, if you take out a personal loan, you can spend it on your wedding, holidays, cover your extra immediate expenses, and more. 

However, loans such as home loans, car loans, student loans are specific and need to be spent on buying things that they are meant for. So, a home loan for buying or renovating your home, a car loan for getting a car, and a student loan for your education. 

But make sure that you make habit of borrowing large sums and spending it carelessly. Remember, you have to repay the loan amount in due term. 

  • Repayment structure flexibility

When you borrow a loan, you will have the flexibility of repayment structure. However, this flexibility will be agreed upon by you and the lender. Once agreed you need to follow that repayment plan for due time. 

If you default in repaying the loan, it will affect your credit score and the ability to take out a loan in the future. 

Cons of Taking out a Loan

  • Good credit score

If you want to take out a loan, you must have a good credit score. The score must be above 580 to be considered as good. You must understand that a good credit score is elemental to the approval of your loan. 

If you don’t have a good credit score, it is indicative of poor financial management. This will affect your approval and you might even get blacklisted if it’s too bad. Once you are blacklisted, getting a loan will be next to impossible. 

  • Increased financing costs

When you are deciding to take out a loan, you need to make sure that you can afford the loan. You need to take a good look at your income and ensure that you have enough money to afford the loan and finance any emergencies. 

This is important because if you don’t consider affordability and chew more than you can bite, you will default on the repayment further increasing your problems. You will end up in a debt trap and you certainly don’t want it! 

  • More now but less for future

When you get loan online, the money will be able to cover your expenses in the present time but will leave you dry for future expenses. There might be a time when you have to compromise your desire to enjoy such as going out with friends. You might also struggle for funding your short-term emergencies. 

Taking a loan might seem like a tempting offer but it does have long-term consequences on your budget. So, be mindful when you take out a loan. 

Factors Determining Loan Costs

  • Size of loans

Get this that the bigger amount you borrow, the bigger repayment amount you need to pay monthly. Hence, take out a loan that you can afford. If you default on repaying the amount, it can cost you a lot in the future. The rule is that if you have a higher income and a great credit score, you can borrow significantly higher. 

  • Interest rates

You might already know that loans have interest rates applicable that will determine your monthly repayment amount. Also, interest rates are how lenders will make money. Based on your loan type and loan term and the current status of the market, the interest rate will be determined. 

If you have a great credit score or a secured loan, you will get lower interest rates. So, aim for loan types and amount that gives you lower interest rates. 

  • Loan term

This is another deciding factor! If you take a loan that you repay in short term, you will have a higher repayment amount but lower interest rates. However, if you take a loan that you repay in long term, you will have a lower repayment amount but higher interest rates. 

You must find a perfect balance between your loan amount and repayment term to get the best of the loan. 

Through this article, we want you to better understand the whole concept of loans and how borrowing will affect your finances. This will certainly help you make an informed decision. 

To find the right loan for your needs, you can visit our website Snappy Loan. On our website, you can search, review, and compare different loan offers available in South Africa. You can also visit the lender’s website directly from our website by clicking on ‘Snap It!’ for applying. 

You can also read all our previous blogs for more information on different types of loans. Visit our website now.