Choose your “Loan Type” carefully or pay the price – with interest.

Understanding different types of loans available in South Africa is important if you are in the market for a loan.

Like it or not, debt runs South Africa’s economy! Credit forms an integral part of any growing country. Without credit, there would be very few homeowners or vehicles on the road.

A few points to consider when looking for a loan –

  • Understand the complexities of the lending industry
  • Do online research to inform yourself further
  • Avoid digging yourself into further debt
  • Selecting the right loan is vitally important
  • Our loan guide will help you make the right decision


People need money for many different reasons, however, you need to understand how complex the lending industry is. It could create even more debt for naive borrowers.

Read through our short version of loan types to find what you need and cut down on researching everything. Before taking out a loan you must do some online research.

Failure to do so might end up with you:

  • Taking out the wrong type of loan
  • Paying a higher interest rate than you need to
  • Creating, even more, debt for yourself
  • Losing your assets if you default on repayments

Understanding different Types of loans – Here’s a Breakdown of Loan options –

Understanding different types of loans

Consolidation loans


A Consolidation Loan enables you to place all your debt into one account. The bank will then settle all your outstanding debt, you repay a monthly instalment on the amount.

This type of loan offers better interest rates than the amounts payable on several debts, thus, saving you money and improving cash flow.

Micro Loans 

When it comes to understanding different types of loans, Micro Loans are a good choice for people seeking quick cash. Referred to as Payday Loans, you can access amounts of between R100 and R3 000, payable on pay day.

While offered by certain banks, Micro Loans are usually easier to obtain from smaller lending companies. However, only deal with reputable lenders as there are a large number of loan sharks operating under the radar of the National Credit Act (NCA).

Unsecured personal Loans

Unsecured Personal Loans are another popular form of financing in South Africa. The attraction of this type of loan is that you do not have to provide any form of collateral to obtain cash.

However, unsecured Personal Loans attract high-interest rates because they are seen as “high-risk” by lenders. Payment is within 24-hours for more modest amounts of cash. Repayment periods are also much shorter.

Defaulting on an unsecured Personal Loan

Not having to provide security to obtain this form of financing does not mean that you will escape serious consequences should you default on their repayments.

Lenders can enforce court judgements and force you to repay the loan in the form of a garnishee order. Courts can even overrule the terms of the loan contract, declaring them as secured loans. You then stand to lose fixed property or other assets.

Secured personal Loans

Secured Loans are labelled “low-risk” because you have to provide collateral such as a fixed property or a motor vehicle in exchange for cash. This form of loan offers lower interest rates, higher loan amounts and longer repayment periods. However, defaulters also face serious consequences.

Finance houses will repossess and sell off your assets to repay the loan if you fail to meet the monthly repayments. Another factor to consider is that higher loan amounts are often linked to prime interest rates.

Understanding different Types of loans – Home Loans

Home loans, also known as mortgages, are granted by banks or home loan firms to people needing finance to purchase a property. To qualify for a home loan, you must provide a deposit towards the purchase. This can be up to 20%.

If you want to purchase a property for R850 000, the deposit required will be R170 000. Defaulting on home loan repayments can result in repossession of the property by the finance house. The property will then be auctioned to offset the outstanding balance of the loan.

Should the sale of the property result in a plus balance, that amount of money will be returned to you. However, should the sales price of the property be lower than the outstanding balance of the loan, you will still be liable to settle that amount.

Credit Cards

Banks are happy to issue credit cards and will turn a blind eye to late payments for some months before taking any action against the holders. Credit cards attract high-interest rates and make a lot of money for the banks because most holders spend money they don’t actually have.

Banks and major store chains issue credit cards with set amounts that holders are entitled to spend. Consumers love the convenience of credit cards not only because they give access to shopping without real cash on hand, but also because of the array of services available.

These include hiring a car, booking tickets online, or making bigger purchases such as new appliances or furniture for the home. Also on the plus side is that credit cards can help build good credit ratings if holders pay their monthly instalments on time.

Student Loans

An increasing number of South Africans are turning to Student Loans to help further their education. Obtaining a university degree or attending a college is extremely expensive. Not everyone qualifies for a bursary or has sufficient money to finance further education.

Student loans can be used to pay university or college fees and, depending on the borrower, could also finance the cost of text books and accommodation. The beauty of a student loan is that it is only repayable when the student completes his/her education and enters the workplace. Interest rates vary, depending on the amount of the loan and the repayment period.

Understanding different Types of loans – Conclusion

You are urged to research all options before selecting a loan best suited to your individual needs. There are several online loan quote providers who assist consumers at no cost whatsoever.

To apply for a loan, fill in the form on this page. Then click to submit!

All info was correct at time of publishing