Read our quick guide to personal loans basics
Taking a loan might seem a little daunting, especially if you’re doing it for the first time. There are many different loan providers, types of loans, interest rates, loan terms… Not sure what to choose?
First of all, you need to ask yourself what you need the money for, how much you need and how quickly you can repay it back.
On the most general level, we can distinguish between short-term and long-term loans. The latter most commonly refers to home loans that can get quite complicated and difficult to get, but the short-term loans are generally hassle-free and accessible to most people.
The most versatile form of a short-term loan is personal loan, which allows you to spend the money in any way you choose, unlike for example car or business loans that are taken for a specific purpose.
So if you decided that a flexible multi-purpose personal loan is what you need, you must then decide how much to borrow. Make sure to review your financial standing thoroughly beforehand. Look at your expenses versus income to see how much you’re able to pay back to the lender every month.
Next, the duration. Remember that even though a longer repayment schedule could seem like a better option as your monthly instalments would be lower, overall such loan will cost you more because you will be paying more interest. In the simplest terms, interest is the cost of borrowing the money, typically expressed as a percentage of what you borrow. The longer the loan goes for, the more of those costs you pay to the lender.
Many lenders offer fixed or variable interest rates on their loans. The difference between the two is easy to understand, as fixed interest rate stays the same for the duration of the loan and variable rates can go up and down depending on the market conditions at any time during the term of your loan. So, chances are that your repayments can go down, as well as up. It is up to you to decide whether you are willing to take the risk.
It is important to know that borrowers in South Africa are protected by the law called National Credit Act, which stipulates the maximum percentage of interest that can be charged on a loan. According to that law, the maximum interest rate that can be charged is 35%.
If you’re still unsure where to turn to with a personal loan request, start here! You can get up to 5 quotes and choose what works best for you.