Your repayment amount will be determined by five factors: initiation fee, monthly fee, interest rate, the term of your loan, and credit life insurance.
- Initiation fee: This is a once-off fee charged by the lender when you first take out the loan. It can be paid in instalments – however, it is advisable to pay it upfront.
- Monthly fee: This fee is for the administration costs of a loan and it’s always the smallest, long-term fee.
- Interest rates: Interest rates can be flexible or fixed. It is up to you to choose the best one for you. However, it’s advisable to choose a fixed interest rate. Your interest is unique to your personal circumstances. It depends on several factors, such as the term of your loan and your credit score. With a longer term and lower credit score, your interest is likely to be higher – and vice versa.
- Term of your loan: As mentioned above, the longer you take to repay your loan, the higher the repayment amount will be. Lower instalments can be tempting but you end up paying more in the long run. Therefore it is advisable to pay higher instalments in order to save money. If your take-home pay is high, you are likely to get a shorter term.
- Credit life insurance: This ensures that your debt is paid when an unforeseen event that causes loss of income occurs. For instance, if you are retrenched, become terminally ill, disabled, or pass away, you will not be able to repay your loan unless you have credit life cover. Remember, you don’t have to purchase this policy from the lender. You can buy it from a service provider of your choice, but it is compulsory that you have it.
What is the qualification criteria?
Before lenders grant you credit, they will do an assessment to see if you will be able to repay the loan. Your age, employment status, affordability, and credit payment history are some of the factors that determine whether you qualify for a loan or not.
Age: Credit providers do not issue a loan to someone who is younger than 18 years old or older than 65. But the maximum age varies with each credit provider.
Employment status: To qualify for a loan, you must have proof of your income and bring bank statements that correspond with your payslip. The creditors will confirm your employment and check if your place of work indeed exists. Self-employed individuals and pensioners can also apply. Your employment contract (permanent or temporary) will affect the amount and term your creditors will grant you.
Affordability: If your expenses and debt exceeds your income, you have no chance of qualifying for a personal loan. To get an idea of your expenses, your creditor will look at your bank statements to see how much goes off per month. Creditors will also look at your payslip for deductions – such as insurance and medical aid – to access how much you take home after those deductions.
Credit payment history: Your credit behaviour is very important because it shows the risk that you pose to the creditors. If you miss your payments, pay late, or have a judgement against you, your credit score will drop. A low credit score means you will either not qualify for a loan or qualify for a smaller loan and pay higher interest rates.
You can get up to R250,000 for a personal loan, depending on your credit provider and the factors listed above. Many personal loans are unsecured, which means they are not backed by assets and therefore they have higher interest rates than secured loans.
Personal loans can help you achieve your dreams. They give you access to quick cash when an emergency strikes. However, if your credit rating is not good, this might not be a good idea as you will incur higher interest rates. People with a healthier credit record get lower interest rates.
If you are struggling to pay your debts, you can consolidate them with one personal loan or through debt counselling. This will help you decrease your instalments, giving you extra cash and breathing space.
For more information on personal loans see our guide below.
Note: Loan repayment terms can range from 3 to 84 months (risk profile dependent). The maximum interest rate is typically 20% per annum (compounded monthly). The initiation fee is based on the loan value. An illustrative example of a loan at an interest rate of 20% per annum would be Loan amount 100 000, loan repayment of 72 months with a Monthly Insurance premium of R455.00 and monthly service fee of R68.00. The total monthly instalment would be R2,948.00.
