Have you been thinking of taking out an unsecured loan? Do you know everything there is about an unsecured loan to make an informed decision?
Since you are reading this blog post, we assume that you don’t have complete information about unsecured loans. Moreover, you might have been confused with so many options on the market.
Don’t worry! In this blog post, we give you a comprehensive overview of unsecured loans that will help you make an informed decision.
What is an unsecured personal loan?
Now, firstly, let’s understand what a personal loan means. So, in brief, personal loans mean borrowing money from a financial institution such as a bank to cover large expenses. You can use personal loans to cover your wedding expense, university fees, renovation of home, or any such personal requirement.
An unsecured personal loan means that you don’t have to provide any personal property as collateral. All you need to do is apply for the loan and get the loan amount without putting your personal property at risk.
Unsecured loans: How do they work?
As said above, that you don’t have to risk your personal property for an unsecured loan. However, this is the reason why unsecured loans have higher interest rates.
Higher interest rates ensure to protect the lenders if you default at paying your monthly repayments. Also, some of the unsecured loans have a borrowing limit for the same reason.
But the overall following is the comprehensive review of unsecured loan:
- Minimum loan amount: R1, 000
- Maximum loan amount: R350, 000
- Loan term: The usual loan term is 1 month to 84 months (7 years) for repayment of a loan.
- Interest rates: 27.5% is the maximum interest rate for unsecured loans in South Africa.
Apart from unsecured personal loans, you can also choose from other unsecured loans such as payday loan, student loans, and lines of credit.
Unsecured loans: When is the best time?
Since you don’t have to keep the personal property as collateral for taking out an unsecured loan, you can apply for it any time. But it is wise to take out an unsecured loan when you need it the most.
Always remember, you must repay the loan with interest rates in due time. So, apply for an unsecured loan when you the utmost need for money. Here are some situations where having an unsecured loan might be helpful.
- Buying essential items: If you intend to buy essential items such as a laptop, electronic items that make your life easier, an unsecured loan can assist you with that. If you need money to fix your car, you can apply for an unsecured loan in that case too.
- Emergency: If you encounter a medical or family emergency, taking out an unsecured loan will be advantageous to cover the expenses.
- Holiday or wedding: These events are quite expensive, but they add value to your life. And if you need financial help to pay for them applying for an unsecured loan would be a great idea.
- Debt consolidation: If you have several smaller debts, you can use an unsecured loan to consolidate those debts effectively. Now, you will have only one debt to repay.
- Investment: If you want to invest in something that will give you profit over time, you can use an unsecured loan.
Secured Vs unsecured loan: The comparison
- As mentioned above, you don’t have to put your personal property such as a car or home as collateral when you take out an unsecured loan. On the contrary, secured loans need collateral.
- If you take out unsecured loans, there is no risk of losing your personal property. If you default at repayment. Whereas in a secured loan you can use your property to cover the repayments.
- Unsecured loans have higher interest rates as compared to secured loans.
- Lastly, there are some unsecured loans where you must face a borrowing limit. Also, unsecured loans have stricter requirements and if you have poor credit, you might not be able to apply for an unsecured loan.
Unsecured loans: Advantages and Disadvantages
When you are borrowing money from a financial institution, you must consider the benefits and disadvantages.
- Benefits of unsecured loan:
- You don’t risk losing your asset since unsecured loans don’t need any security.
- When you opt for unsecured loans, you can use the money for any purpose.
- If you fulfil all the requirements of unsecured loans, applying for them is quite easy. You apply for loan online easily with just a few steps.
- Unsecured loans have higher interest rates
- You might have to repay your loan on short term
- You might not be able to borrow larger amounts as some of the unsecured loans have borrowing limits.
Unsecured loans: How to choose?
- Borrowing amount: Make sure to decide on how much loan amount you want to borrow. You must be able to afford the loan amount as you need to repay it in due time. Find a loan that can give you the said amount.
- Interest rates: Although, unsecured loans have higher interest rates, you can find some unsecured loans that can offer affordable rates. Also, you need to choose between variable interest rates and fixed interest rates.
- Annual Percentage Rate (APR): Make sure to choose an unsecured loan that has a low APR. This will allow you to keep the overall loan cost down.
- Additional features: Make sure to find as much information about the loan as possible. You don’t want sudden surprises! For example, some unsecured loan asks for credit protection fees that cover in case you lose your job, or you die.
Unsecured loans: Application requirements
The general application requirements for unsecured loans are:
- Minimum monthly income (depends on the lender)
- Valid ID issued by the South African government
- Good credit history
- Proof of income (payslips for the past 3 months)
- Minimum 18 years of age or above.
Based on the above information, you can visit our website Snappy Loan to search, review, and compare different unsecured loan offers. Once you have chosen a loan offer, just click on ‘Snap It’ and go to the lender’s website. You can fulfil the requirements and apply for a loan right away. Visit our website now to know more.