Personal Loans in South Africa
Money is one of the most important things we need to meet our everyday supplies, as humans we work so hard to obtain financial gains but it is not definite that we always acquire the funds when we need
The personal financial back up comes in several ways, and some would do savings, others opt for business ventures, while a large number of people opt for personal loans. These all serve the same purpose of covering the financial gaps. They are created by fluctuations in our incomes or the occurrence of unforeseen events.
In South Africa, the populace favors the use of personal loans than another way of enhancing personal finance. These are ordinary citizens who might not have the capital or lack of surplus to make investments.
About personal loans
Personal loans are micro to medium financial credit extended to individual borrowers by financial institutions in return for an interest charged repayment. These loans come in various forms that are classified on the size of the amount, length of the repayment period, and the function intended.
Personal loans can also come in the form of secured or unsecured financial credit, and this will depend on the size of the amount involved in the deal.
Personal loans come in a variety of loans, with the most common ones being quick loans, short-term loans, shopping loans, overdraft facilities, and payday loans. Personal loans can also be acquired in the form of housing loans, educational loans, business start-up loans, and vehicle loans. These are generally large in monetary value, in addition to that, they are issued as secured loans.
In many scenarios, the assets financed by such a loan will be used as collateral as the lender try to curb the default risk and loss given default (L.G.D). The nature and amounts of personal loans that are issued in small quantities generally have lower risk and so, many providers of micro-credit services issue these as unsecured personal loans.
Where to obtain personal loans?
There are strong regulations for the issue of personal finance in South Africa, with the National Credit Act (NCA) of 2005 regulating the activities of both personal credit providers and regulators. This bill led to the formation of the National Credit Regulator (NCR), which is the ultimate regulator of financial lending before the minister of finance.
All personal loans issued should comply with the provisions of the NCR. The NCR provides and updates regulatory guidance on matters relating to interest rates, responsible lending, and ethical practices for issuing personal financial credit.
In South Africa, personal loans can be issued by companies, organizations, or sole traders who are registered as a provider of credit services. These providers are issued with operating licenses. Copies and details of these licenses should be displayed on the business premises where the public or any other stakeholders can view them.
The national credit regulator performs random checks on the personal credit providers, issuing and terminating licenses over a specified period. Although this has been successful in many areas, it does not route out the existence of money laundering. Also, unregistered lending activities that are rife in most parts of South Africa. Borrowers should know that it is a crime to both the credit provider and the borrower to engage in any form of commercial lending with unregistered lenders.
The most reliable places to obtain personal loans would be large investment corporations like Old Mutual, Sanlam, and Wesbank. They do not only issue secure personal loans, but they also beat many banking corporations on interest rates and amounts. The next alternative would be your bank, followed by micro-finance and micro-credit institutions. Personal loans from these institutions are more comfortable to obtain as their services are available online.
What sizes are personal loans?
Depending on the intended use and credit scores of the applicant, personal loans can be issued in more significant amounts, and these could be anything from R100 to R400 000.
In rare scenarios, clients can be issued with personal loans that can reach up to R1 000000, and this will depend on the need for the investment and the working history that the applicant has with the institution. Loans that are issued in short-term nature typically have small amounts that are below R8 000. Large sized loans will have higher application requirements, low interest rates, and longer terms.
Personal loans that are large-sized are those intended to finance the business of investment operations.
At what cost would i get a personal loan?
Similarly to other types of loans, personal loans are also charged with interest rates, administration costs, initiation costs, and service fees. Clients should make inquiries on issues relating to the value of their loans, and it is the total cost that matters when one acquires a cash loan.
Most people make the mistake of considering interest rates alone when weighing loans. Interest rates might be deceiving as some credit providers charge low-interest rates in addition to other excessive costs. Depending on the issuer’s preferences and requirements, clients can expect to be charged with at least two of the charges mentioned above.
These charges come in the form of return to the personal loan provider. Initiation costs on personal loans are usually the same despite the size of the loan; these are charged for the facilitation of credit assessment before disbursing a loan.
Service fees cover the cost of facilitating the collection of repayments from the personal loan applicants, which is from arranging a direct debit order system. Some credit providers also charge their clients with administration fees.
Administration fees are the costs that the provider incurs in line with the recording, record-keeping, and accounting of personal loans. Administration fees and services fees normally come in small amounts. Also, their recurring nature makes them materially determinant to the cost of the loan. Most personal loans (except for a payday loan) providers break these into small monthly payments paid as part of the instalment.
Interest charges are by far the most common type of costs that one will be exposed. On all personal loans issued by commercial lending institutions, clients should expect to be charged with interest rates, and the interest charges represent a contribution of return to the provider.
Unlike service costs, initiation and administration fees, interest rates differ marginally with the loan size, term of repayment, and credit scores of the applicant. Larger and secured personal loans generally have lower interest rates as compared to smaller and unsecured borrowings.
For loan applicants interest rates have an advantage of government interference, in line with the provisions of the National Credit Regulator, the interest rates on personal loans may not exceed 5% per month, 30% bi-annually, 60% per year or an effect of such rates on longer or shorter terms.
In addition to the costs mentioned above, clients may find themselves experiencing additional expenses on their personal loans. These costs come in the form of penalties and late payment costs. The fees are charged by the credit providers of the banking institution to cover for the time value of money they would have forgone. When a client fails to settle a personal loan repayment over a term stipulated, the credit provider might add penalties that also accumulate interests.
On the other hand, banking institutions will charge late payment fees on all the direct debit orders that fail due to insufficient funds in the bank account of the client.
What repayment term can i expect?
Personal loans are issued for various reasons, and it is these reasons that determine the length of the repayment term of the personal loan.
In general, personal loans that are issued to cover matters of emergency will have short terms, and those intended for developmental purposes will have a longer duration. Applicants can be able to source personal loans with terms from a little one week to a whopping seven years, with payday loans and shopping loans taking the least periods.
Does my credit history matter?
It is a regulatory requirement for personal loans issued in South Africa to be in line with all responsible lending practices. Individual credit providers are obliged to undertake screening and credit assessment for personal loan applicants.
This involves checking the credit rating of the applicants through relevant credit bureaus and performing internal credit assessments to facilitate that right amounts are given to clients. This is done to prevent the financial institutions from providing personal loans to clients who cannot make repayments at the same time preventing money laundering activities.
The NCR also requires the personal credit providers to disclose all relevant terms and conditions that the clients before exposing them to the personal loan package.
This is in line with the ethical financial practices that try to shield loan applicants from being charged with excessive penalties and hidden costs. The National Credit Regulator also makes provisions for interest rates on all personal loans, and these are provided to prevent credit providers from charging excessive interest rates.
That means all providers of personal providers are somehow concerned with the credit rating of the applicant.
How do i obtain a personal loan?
In South Africa, personal loans are relatively easier to obtain as compared to other African countries. This can be traced to a large number of personal loan providers and the high circulation of money, which always see the personal loan providers competing for clients.
There are significant financial institutions like ABSA, Old Mutual, Nedbank, Wesbank, and Sanlam, which are known providers of cheap personal loans. The others include other banking, micro-finance, and micro-credit institutions that provide personal loans as part of their core business.
There are three common ways of obtaining personal loans in South Africa that is through the credit provider, an agent/broker, and a partner. The personal loan applicants can receive their loans by applying directly through the loan provider, which is the standard way.
In addition to that, there are a large number of loan brokers in South Africa. These are the organization that specializes in research, the advice in addition to facilitating the application of these loans. Ultimately the finance company may also work with partner companies, providing loans for the purchase of goods and services from these partners. These typically include car manufacturers, real estate companies, shops, medical and tertiary institutions.
The ultimate stage for obtaining a personal loan is making a loan application. As most parts of the country have made intensive technological uptake, in this section, as most of the small companies providing personal loans only make an online application.
However, more giant corporations have blended the paper-based application with online applications. One might also expect to find a few companies that still use paper-based applications alone. Despite the type of application you make, all applicants will undergo a credit assessment before they can be granted a personal loan.
The standard application process of a personal loan will be a short exercise that the applicant will be required to fill. Their personal and financial information before submitting supporting documents.
What is needed to obtain a personal loan?
Personal loans have application requirements that are similar to short-term loans, vehicle finance, and quick loans. These loans are issued to customers who have proven willingness and ability to repay the secured loan.
These clients would typically be South African citizens who work, where they receive regular income through significant banks. The applicants would need to be above the age of 18 years before applying.
In addition to these applicants should be ready to produce the following documents during the application process.
- South African national identity document (A bar-coded national identity card or book)
- Three months stamped bank statement
- Proof of residential address not older than three months
- Latest pay slip from the current employer
Lenders offering Personal Loans in South Africa
Informative books on Personal Loans in South Africa
Informative international books on Personal Loans
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