Guiding consumers since 2009

Can you get a personal loan while under debt counselling?

By Alina Hardcastle

You may find yourself in a financial rut, undergoing debt counselling. While you might consider taking out an additional personal loan – this may not be the answer to your problem. We explore the legalities and whether or not this is an option.

What is a personal loan?

“A personal loan is a short term borrowing product for an individual. It is an unsecured debt instrument, which means that one does not need to put up security like a house, insurance policy or other assets to obtain the loan,” says Thuli Magubane, host of My Money and Me on Kaya FM.  

This type of loan could be taken out for various reasons i.e. to pay for a holiday, an emergency, a wedding, education, funerals or any other immediate needs. In regards to repayment, this can be anything up to 36 months.

How does a personal loan differ from any other type of loan?

Unlike secured debt, such as a mortgage or vehicle finance, a personal loan doesn’t require an asset such as house or vehicle as collateral or a guarantee. “As a result there is a higher risk on the loan for the credit provider because there is no collateral; hence the interest will be higher than on a secured loan,” explained Arthur Wasara, marketing assistant at DebtBusters. 

Can you take out a loan when under debt counselling?

Unfortunately it’s not possible to apply for a personal loan, or any other form of credit, while under debt counselling. Magubane explains: “Debt review is a debt rehabilitation process, which enables an individual to take control of their financial situation and bring them back to financial well-being. As a result, they will not be allowed or able to apply for more credit or use their credit cards, while under debt review.”

The National Credit Act (NCA) introduced the formal debt rehabilitation programme, debt counselling, as an alternative to prevent individuals from being placed under personal administration and having to deal with the long term effects of that. Wasara says: “The aim of debt counselling is to get you debt free and focuses on the current debt at hand.”

Ideal candidates for debt review are those who are unable to keep up with bond payments or credit. Being over indebted means that you don’t earn the required amount each month to cover your debt repayments and general living expenses. However, it is also required that the individual is employed and earning an income.

Once you undergo debt counselling, your debt obligations will be restricted and new repayment plans are agreed upon with your creditors. This will be done through the process of renegotiating interest rates with creditors to reduce them, as well as by extending the debt repayment terms. A new affordable monthly budget and payment plan is drawn up by a debt counsellor, which will provide the individual with a breather and an ability to manage their finances, Magubane explained.

Handy tip: Are you struggling with your debt repayments, apply for Debt counselling here.

Recent Articles

Featured What to do when you’ve been denied a home loan

After months of scanning property sites and attending showhouse after showhouse, you’ve finally found what you’ve been looking for. But your dream of owning a home comes crumbling down when you receive the news that you’ve been denied a home loan. So, what now?

Can your retirement annuity be used as collateral for a loan?

If you have a retirement annuity, you may have wondered whether you can use this as collateral when you take out a loan. We decided to do the leg work and find out whether this is possible or not.

Best travel cards offered by top South African banks

Planning a trip abroad involves a lot of administration. You need to consider travelling arrangements, reasonable accommodation, and a daily itinerary. But have you considered how you’re going to pay your bills once you arrive? Besides considering bank costs, you also need to consider exchange rates.

Best ways to save your money short-term

For many, it seems close to impossible to save when spending on holiday getaways, Christmas gifts, while also trying to ensure there’s money left to survive January. Justmoney takes a look at the best ways you can save during the short term.

Deals

Takealot January Big Sale

Price: Available on request
When: Until 31 January 2020
Where: Online

Annique Restore Package Special

Price: From R600
When: Until 31 January 2020
Where: Centurion

Ster-Kinekor Senior Citizens Discount

Price: Available on request
When: Daily
Where: Nationwide