Taking out a personal loan could seem to be the answer to your money woes. When you’re in a financial pickle, the idea of receiving a lumpsum to cover your costs can be alluring.
But have you considered the additional costs you may incur as a result of this decision? We find out what you can do to ensure you get your loan, but also look at the dangers of doing so under pressure.
Tip: If you want a loan because you’re struggling with debt, you should try debt counselling first.
Payday loans are the easiest to get – but they come at a price
According to Manuel Franck, director at Lamna Financial Services, the easiest loans to get are payday loans, which you can secure by applying online. The funds are generally received in a very short period of time.
However, the downside is that the interest rates are high, so you need to make sure you’re able to service the cost of the loan. He says that this is often impossible, because clients aren’t vetted, and are charged a premium for the convenience of bypassing the official vetting process.
“You should never apply to, or accept a loan from, a lender who is not registered with the National Credit Regulator (NCR). This is a clear indication that the lending practises are predatory,” says Franck.
A payday loan may help you balance your finances for a month, but it will keep you in debt for the next year or longer, depending on the size of the loan. Finding a solution that considers your long-term interests is incredibly important.
If you’re still considering taking out a payday loan, read our guide on the pros and cons before you make this decision. If you’re trying to settle your debt, consider debt consolidation instead.
The benefits of working a little harder for a loan
Although it may take more time and effort, by working through a legitimate credit provider, you’ll be protected by legislation and regulations.
According to Ariel Eliasov, credit head at FNB Loans, you can ensure that you’re approaching a trusted credit provider if they’re registered with the NCR.
“It may seem easier to get credit from an informal lender, such as a ‘Mashonisa’. But these lenders are free to use any practices they deem fit to decide on interest payable and on methods of collecting the borrowed money from you – often to your detriment,” says Eliasov.
He explains that legitimate providers are legislated under the National Credit Act (NCA) which protects both the lender and, more importantly, the customer in the following ways:
- It regulates interest rates and fees, thereby ensuring that consumers are not charged exorbitantly.
- It ensures that a customer receives a quotation and a pre-agreement statement to properly understand the interest, fees, and charges they are liable for.
- It makes sure that a customer receives – at a minimum – quarterly statements, which set out the current balance, arrears amounts, fees, interest, and all amounts credited or debited.
- It affords the chance for customers to complain about the credit granted to the credit provider directly, refer a dispute to an ombud with jurisdiction, file a complaint with the NCR, and/or apply to the National Consumer Tribunal.
- It allows customers to settle their credit agreement, without penalty, earlier.
Eliasov says that before approving your loan, a legitimate credit provider will conduct an affordability assessment to ensure that you’re not over-indebted.
“It also considers whether you can, in fact, afford the credit, and it determines whether you understand the cost of the credit and all its associated fees,” says Eliasov.
He adds that a legitimate credit provider will consider your repayment history, your income, your monthly expenditure, and your other debt obligations.
To apply for a personal loan with a trusted credit provider, click here.
What can you start doing today to qualify for a legitimate loan?
Your first step towards securing a loan with a legitimate provider is to start building your credit profile.
According to Amika Maharaj, innovation and niche product head at FNB Loans, a registered credit provider will ascertain whether you have a healthy credit record and whether you can afford getting a loan without over-indebting yourself.
“In order to be granted credit, you need to have shown your ability to make timeous repayments and manage your credit effectively,” says Maharaj.
She points out the following ways to increase your chances of being granted a loan:
- Always meet your minimum monthly instalments on time.
- When possible, pay more towards your loan to show your willingness to repay it, and good money management behaviour.
- Proactively manage your credit agreements. If there are months where you doubt whether you will be able to pay in full, reach out to your service provider ahead of time to make alternative arrangements.
- Keep your expenses as low as possible so that if you do need credit, you can afford the instalment obligation.
- Avoid over-utilising your credit facilities (for example, don’t “max out” your credit card).
- Make use of secured credit wherever possible, such as car finance or a home loan.
- Ensure that all information disclosed as part of your application is as accurate as possible.
In addition to this, Maharaj says that you should receive your annual free credit report to make sure all the information is correct and up to date. Click here to find out how you can get your credit report today.
“You can also make sure that when you do borrow, you borrow the minimum that you need so that you can avoid overextending yourself,” says Maharaj.
She also recommends consolidating your credit to simplify your credit obligations and reduce the fees that you are liable for. If you’re struggling with your outstanding debt, click here to see how you may be able to get your payments consolidated and pay less interest going forward.