Taking Out a Loan in South Africa – Avoid the Sharks

    December 18, 2014

    Many of us, at some time in our lives, will find ourselves taking out in South Africa to assist in difficult times,pay off medical bills, pay our children’s educational costs, upgrade our home or even take a family holiday.

    There are many different institutions where people are taking out a loan in South Africa, ranging from the major banks, such as ABSA, Nedbank, FNB, Standard Bank, Old Mutual and Capitec, through to non-financial institutions, such as Woolworths and specialised private money lenders.

    These loan providers offer very different interest rates and terms and conditions. It is therefore extremely important that you are fully informed of the cost of the loan to you when applying for a loan and your rights under the National Credit Act. When applying for a loan, you must make sure that the costs and repayments are within your budget, or else your debts can spiral out of control.

    And remember, the cost of taking out a loan in South Africa may not be just the interest rate charged, as you may also be charged an initiation (start-up) fee as well as a monthly service fee. You may also have to take out credit life insurance.

    Different types of loans

    Taking Out a Loan in South AfricaIt is important to understand the difference between secured and unsecured loans.

    For an unsecured loan, basically a micro loan or a personal loan, you do not need any property or a similar asset (personal possession) to obtain the loan. (Although, if you fail to make payments, your assets can be seized.) Interest charged on unsecured loans is generally higher than on a secured loan, as you are considered more risky by the credit (loan) provider. The interest rate you will be charged will also be different depending on the loan provider and how the provider sees you in terms of your financial history and how much you can afford.

    With a secured loan, such as for buying a house or vehicle,the loan is made available with the back up of one of one or more of your assets. You therefore are less of a risk to the credit provider and will generally be charged lower interest rates than for an unsecured loan.

    So what is the best way of taking out a loan in South Africa?

    If you have a home loan and you need money urgently, the best (cheapest)loan is usually your home loan. For this you will need an access facility on your home loan and you will only be able to borrow as much as you have already paid off on your loan.

    If you don’t have a home loan, a micro loan is a smaller type of loan with a short repayment period. This is generally less than R8 000 and payable over, at the most, six months. According to the NCA, you may not be charged interest of more than 5% a month or 30% over six months. If you continually borrow more while still paying off the loan, this known as revolving credit, and you may end up paying 60% a year in interest. These are the most expensive loans.

    A personal loan is usually over a longer period and has a higher amount, currently ranging from R250 to overR200 000, which you can pay back over up to seven years. Interest rates are also very different depending on the your risk to the credit provider and can range from under 10% a year to a maximum amount which is set down according to a formula from the NCA. For example, for a loan of R180 000, using this formula the most you can be charged in interest is 31%.

    Next step: Please complete and submit the form on this page to get a loan

    All info was correct at time of publishing