Personal Loans Guide
Personal loans are a great way to get quick access to money quickly for home improvements, a wedding, debt consolidation, an unexpected event or any other circumstance where you need quick access to funds. There are two types of personal loans:
- Secured personal loans: With these kinds of personal loans, you’ll need to put up security or collateral, usually in the form of a personal asset, so that the financial institution you borrowed from has a claim on that that asset should you fail to repay the loan. Secured personal loans allow you to borrow a larger sum of money, and the interest rate tends to be more flexible.
- Unsecured personal loans: These personal loans don’t require you put up an asset as collateral. As a result, the set interest rate tends to be higher as the financial institution you borrowed from views you as more of a risk.
All financial institutions that lend out personal loans charge interest, which is an amount you pay in return for borrowing money from them. This interest rate will vary depending on the total personal loan amount, as well as how long you’ll take to repay the money. Interest on personal loans is calculated on your outstanding balance and is charged at the end of each month for the repayment period. Remember that because you’re charged interest on a personal loan, your total repayment amount will always be more than the amount you initially borrowed.
How much money you qualify for on a personal loan depends on your income and your credit risk, which in turn is determined by how you maintain you existing accounts and other personal circumstances such as whether you have assets and a stable job. Whether or not you are listed at the credit bureau for any bad debts will also play a role in whether you will qualify for a loan. When taking out a personal loan, remember:
- Make sure you can afford the repayments. Ensure you can afford to pay back the money each month that you have borrowed on your personal loan. Defaulting on a personal loan payment can have a negative effect on your credit record. If you are unable to make a payment for whatever reason, contact the financial institution in time to make alternative arrangements. Some institutions will give you a repayment holiday or break on your personal loans if you request one with a valid reason.
- Decide between a bank vs a micro-lender. When it comes to personal loans, you can either borrow money from a financial institution, like a bank, or from a micro-lender. A micro-lender is a private company or organisation that lends out small unsecured loans to low income earners that usually cannot use traditional banks. The interest rates charged by a micro-lender on personal loans tend be far higher than a traditional financial institution and the repayment schedule is not always on a monthly basis, but can be weekly or whatever the micro-lenders determine.
Getting a personal loan is easy through ThinkMoney as it takes just three easy steps. Simply enter your details, get pre-approval from several personal loan providers and then decide on the personal loan that best suits you. Want to know more about the best personal loans in South Africa? Read our personal loan reviews. Or, write your own personal loan review about the loan provider you currently use.
