Personal loans: what you need to know

By Staff Writer
By Nicolette Dirk, financial writer, Justmoney.co.za
 
Taking out a personal loan may not be the best solution to making it to month end. But if taking out a loan is your only option, you should shop around for the most affordable interest rates. 
 
 
What do banks offer?
 
At Standard Bank you get a personal loan of up to R300 000 if you earn R3000pm or more. With their Revolving Credit Plan you can borrow between R6 000 and R 300 000 (depending on your affordability and risk profile). The interest rate is also linked to the prime rate and will be based on your risk profile.
 
With the Revolving Credit plan, for example, you can also take out insurance to settle your loan in full in the event of death, disability and dread disease. It pays up to a maximum of three monthly instalments upon retrenchment. 
 
At Nedbank you can get a loan of anywhere between R1 000 and R120 000. For a R1 000 loan your minimum instalment can start from R119, 17 depending on how many months you choose to pay off your loan. Your maximum instalment for a R1 000 is R207, 80 over 12 months. For a R1 000 loan the minimum interest charged would be 8.50% per annum and the maximum amount 31% per annum. 
 
With the extra fees added in, the minimum amount you will pay for a R1000 loan over 12 months is R2 316 and the maximum amount is R2 494. But this amount increases greatly the longer you take to pay. That same loan could cost you between R 5 720 and R 6 435 if you pay it over 48 months.
 
At Absa you can borrow between R3 000 to R150 000 with repayment periods ranging from 12 to 84 months. 
Capitec offers personal loans that can be paid off  over 84 months and interest can be as high as 25, 5%. But if you can afford to pay it off over nine months the interest reduces to 18, 7% .
 
Non-bank lenders
 
Wonga offers small, short term loans aimed at solving a short term cash flow problem. Kevin Hurwitz, chief executive officer of Wonga.com says a first time customer can borrow any amount between R100 and R2500. 
 
“The loans are available for any amount of time between three days and around 40 days. On average first time customers borrow R1565 for 25 days. The cost of our loans is calculated upfront and displayed to the customer before they proceed with the application,” says Hurwitz.
 
What are the most affordable loans?
 
Ian Wason, chief executive officer of Debtbusters, says it is important to shop around for the most affordable lender rates and fees.
“Always try to get a loan at your own bank first because they know you and will normally charge you less than the maximum interest rate of 60% stipulated by the National Credit Act,” says Wason.
He adds that vehicle and home loans are usually the most affordable type of loans.
 
Which lender should you approach?
 
Hurwitz says South Africans applying for a loan should only make use of the services of a reputable lender who is registered with the National Credit Regulator (NCR). 
 
“Reputable lenders act as a safety catch for those consumers who are not self-regulating with regards to their financial affairs. This is thanks to stringent credit assessment processes followed by reputable lenders which help to determine whether the prospective borrower can afford to repay the loan before it is granted,” says Hurwitz.
 
He adds that while it may be easier to secure a loan from an unregistered lender, especially if the consumer has a bad credit record, the lender is then free to charge whatever fees it likes. Some may  hold onto personal items such as ID documents or ATM cards – neither of which is allowed under the NCA. 
 
Understand the terms and conditions
 
“Unfortunately, in their eagerness to secure a loan, many borrowers do not take the time to fully understand the accompanying terms and conditions.

There are two key elements borrowers need to understand: when the loan must be repaid and; the consequences of failing to repay the loan by the agreed date,” says Hurwitz. 
 
He adds that in addition, credit life insurance is often added to the charges, which consumers may not even be aware of before they agree to the terms.
 
“In most cases, loans will continue to incur service fees and interest until the full amount is repaid. Consumers must make sure they are fully aware of these potential additional costs before agreeing to take the loan.

What’s more, if consumers default on loans taken, the credit bureau will reflect this on their individual credit records and it may affect their chances of being granted a loan in the future,” says Hurwitz.
 
Make sure you can repay the loan
 
Hurwitz says that before taking a loan, it is imperative that consumers calculate exactly how much they can afford to borrow so that they can repay the entire loan (including fees and interest) within the agreed period. 
 
He adds that a common mistake people make when assessing their ability to repay a loan is failing to take into account the additional cost of interest and fees charged. 
“This is why it is important to deal with a reputable lender that is transparent and upfront about the fees and interest charged,” says Hurwitz.

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