The popular misconception is that personal loans are interest rate junkies. This means that the Annual Percentage Rate (APR) is extremely high. APR in simple terms is the total interest rate collectible during a 1 year period. An oversimplified computation of the same is monthly interest rate x 12.
This article will discuss several ways by which you can get a personal loan in South Africa, at low rates. The enumeration is not exclusive. Please bear in mind that your chance of approval depends on several factors. This includes, but is not limited to, your income, collateral (if any), and credit rating.
Loans to Avoid: Payday Loans & Loans Sharks
Avoid loan sharks. These will definitely yield the highest interest rates. This is because loan sharks operate outside the law; not to mention the fact that they have a reputation for extreme collection practices.
Payday loans are different form small loans or micro loans. Payday loans are usually payable in 1 to 6 instalments. It uses as a basis your pay slip. As a general rule, these loans also have higher interest rates than micro loans or small loans.
The average micro loan is around R8000. Based on the National Credit Act, the maximum APR should be 30%. This translates to 5% monthly instalments max. If a lender is charging more for a micro loan then chances are you are applying for a different loan or the same is not complying with the NCA. In such a case, better check if they are registered under the National Credit Regulator (NCR). Tip: Both the NCA and NCR have their own websites. They also provide a list of accredited micro lenders online.
These are personal loans with a security or collateral. The rational is, the collateral minimizes the risk to your lender. This is because if you default, the lender can claim the collateral or take possession of the same and sell it. A caveat though; be absolutely sure you can pay on time and in full. If there is any doubt that you cannot pay an instalment, contact the lender and request for an extension.
Some insurance policies allow you to withdraw a certain amount, after you have contributed a certain number of premiums. These are known as insurance advance, and the interest rates are zero or very minimal. Why? It is your money in the first place!
Some employers allow you to take a cash advance, provided you have a valid reason. There is no interest paid. It’s just you claiming your salary ahead of time. This can be in full or in part.
If your credit rating is low, then find a guarantor, surety, or co-borrower with excellent credit. This way, you average out both your credit scores. Best case scenario, poor credit can be converted to excellent.
With the possible exemption of an employer loan, you must not forget to pay back your loan on time and in full. Also, if one lender is treating you well, and have competitive rates, stick to that lender. This is because some lenders put a premium on repeat customers. This results in a lower interest rate, higher loanable amount, and/or better loan terms.