Due to the 2008 financial recession, getting a personal loans in South Africa became a little more difficult. Banks and financial institutions demanded strict requirements and qualifications before approving any personal loan.
Luckily, after a few years, banks and financial institutions slowly regain their trust in the economy again. Thus, loans are emerging once again. Personal loans are gaining much attention nowadays for both banks and creditors as a good alternative to traditional loans.
What Is a Personal Loan?
A personal loan is when a person borrows a certain amount of money from a bank or financial institution. The borrower may use the money for whatever legal purpose he/she wishes: a new home, car, vacation, bill consolidation, etc.
The borrower on his/her end will then pay the money back plus the interest on a monthly instalment basis.
What Are the Types of Personal Loans in South Africa?
Personal loans in South Africa also vary, depending on the financial institution that offers them. For instance, there are loans with a fixed interest rate and there are those with flexible ones. Fixed-rate loans have the same interest rate until the loan is paid off. However, the initial interest rate of this type is higher than that of the latter. On the other hand, flexible-rate loans have a lower initial interest. However, the financial institution may later adjust the interest rate of these loans, thus affecting the amount of the monthly payment.
Personal loans are further classified as secured or unsecured personal loans. Unsecured loans do not require any collateral from the borrower. This means that the bank or financial institution doesn’t have collateral to repossess if you stop paying back the loan. The term for this loan is about 12 to 48 months and normally has a higher interest rate.
On the other hand, secured loans requires collateral from the debtor. In the event that the debtor stop paying back the personal loan, the bank or financial institution does have collateral to repossess. These type of loans normally have a longer payback period – up to 72 months. Secured loans also have a lower interest rate, depending on the collateral that a debtor give when he/she applies for such a personal loan. In a way, although secured loans require collateral, it also gives the buyer a longer time to pay back the sum borrowed.
Since personal loans are flexible, a borrower can really weigh down his/her choices and apply for the one that best matches his/her financial capability.
How Big Can a Loan Be?
Various factors determine the size of a personal loan. Financial institutions look at different angles before approving the size of the loan or the amount that they can provide. The collateral plays an important part in this, as the amount of the loan is a percentage of the collateral’s value. In addition, banks also do risk-evaluations and financial background checks to determine the amount of loan that the borrower can surely pay back.
Personal Loans in South Africa can help a lot of people in alleviating their lifestyle and making them live their dreams. However, a borrower must also weigh the pros and cons of having a personal loan before applying for one to avoid any financial dilemmas.