Short-Term Loans in South Africa
The journey of life is a long one; within it, its made up of short-term supplies that fuel its continuity and determines how individuals are satisfied by their living conditions.
The short-term supplies meant here are the resources required periodically on the part of our lives, these could be standard or unique requirements, but the similarity that comes with supplies is that they all need funding. When it comes to such financing, it is not any form of money that will be deemed useful for solving the shortage of personal supplies.
This is why short-term loans present you with the opportunity to bring ease over short-term financial obstacles.
What are Short-term loans?
The term short-term loans were derived from the characteristics and nature of the loans’ repayment period. The loans are always expected to last or to be completely cleared within six months.
Short-term loans are generally small financial credits extended to individuals over a period that does not exceed six months. These loans could be intended for anything ranging from educational, food, rentals, shopping, vehicle maintenance, and other related expenditures.
That is to say, and short-term loans are a form of personal loans that are issued to cover various financial shortages that are short-lived in nature.
A short-term loan is also an umbrella term for other ranges of personal loan products. These include payday loans, instant loans, and shopping loans, although these own personal loan products are commonly mentioned separately. Similar too vehicle finance and educational finance. The nature that they are issued with gives them an accurate alignment with short-term loans.
With these, clients who intend to obtain short-term loans will be assured of variety and a pool to choose a short-term loan from. Depending on the needs, preferences, and suitability, prospective applicants can access short-term loans that will facilitate ease over financial obstacles.
Why Short-Term Loans?
There is a simple explanation for the need for short-term loans. Imagine yourself driving on a freeway to work, and suddenly your car engine fails. While going to the mechanic, you find out that there is a much bigger problem than what you expect.
In such a scenario, you will have an urgent need for finance. The money needed does not have to be much. At the same time, you would not like to take too long to return the money to whoever could have helped you.
As we know, our pockets do not stay fat, and sometimes we are on low that we will need a quick loan to fund our way through.
Short-term loans are useful in covering financial needs that are small and urgent. These events in which the applicant does not need to spend the whole year paying for them. The issue behind the reduction of the period of repayment is to give clients a quick recovery over a debt.
As we all know, loans tend to have an emotional element attached to them, and these are the feeling of being indebted that the client has throughout repayment. The constant deduction of monthly instalments, when it last over a longer, despite the size of the payment, triggers a negative emotional attachment of being indebted.
Short-term loans also present loan clients with a double opportunity, which is a two-sided impact on their financial conditions. The short-term loans are generally small in amounts issued over a short period, and this makes them easier to repay with most applicants. This means that short-term loan applicants can have an improved credit rating after they clear their loan balances.
The gain in the credit scores will ensure that the client has better prospects of obtaining loans of larger sizes in the future.
Who issues short-term loans?
In South Africa, there are vast numbers of companies that issue short-term loans. The majority of these are small companies that have most of their operations done online.
The question of “who issues short-term loans?” should be answered together with “who are the reliable lenders?” Due to the large numbers of personal credit providers in South Africa, hackers, financial predators, and bogus institutions have also taken the opportunity to pocket the wealth of unsuspecting borrowers.
The national credit regulator issues annual licenses to the providers of credit facilities in South Africa. These licenses are issued to companies, sole traders, and institutions that the authority renders to be fit to publish commercial credit facilities. The NCR makes and revises provisions for short-term loan providers on interest, terms, ethical and responsible lending.
This means that lenders that have valid NCR licenses are considered to issuing personal loans and short-term loans that comply with the interest, terms, and ethical provisions made by the regulator. The prospective applicants for a short-term loan can make use of the NCR’s license display requirements. Identifying registered credit providers, the regulator requires all license holders to present the license details on the premises where the public can view and inspect it.
In addition to the license registration, the public can also make use of the working history of these companies in identifying the lenders that issue the right personal finance solutions.
Companies that have good working history are easily identifiable by their presence on all forms of media. Also, there is a large number of loan brokerage companies that will help a short-term loan applicant with the identification and application of the right service providers. Institutions like Boodle, Bayport finance, and Wesbank are amongst the top providers of short-term loans. In addition to these, your banking corporation can always be regarded as the first preference for your loan services.
At what cost would i obtain a short-term loan?
The cost of a short-term loan is one of the essential factors to consider before lodging an application with a credit service provider. There are two types of credit service providers, those who do micro-credit as a business and those that do it as a package of other business activities.
Typically companies that provide micro-credit as part of their core business have slightly higher rates than others. They will be looking to obtain their primary income from these lending activities. These two types of credit providers have various classes of costs associated with their credit services.
The costs include interest charges, initiation fees, administration fees, and service costs. Although interest rates are the most common amongst these, prospective short-term loan applicants should make relevant inquiries on all the costs. They are a detriment to the ultimate value one derives from a short-term loan.
In most cases, interest rates represent the more substantial portion of short-term loan costs, and they are a return derived by the lender from extending services to the borrower.
Interest rates are highly regulated and watched by the NCR as the regulator makes and revise interest rates. All the credit service providers are obliged to align with the interest rate caps provided by NCR. These caps are that all personal loans, including short-term loans, should not exceed 5% per month. Also, 30% for six months and the effective rate would be used for a period that differs from the periods provided for. That is for a 15 days loan, and one will need to divide the monthly rate to obtain a 2.5% effective rate.
Depending on the credit service providers, the short-term loan applicants are likely to come across one of the following additional costs.
- INITIATION COSTS
Most companies charge these as a way of recouping costs they incur with a loan application, assessment, and evaluation procedures, and these also include the cost credit rating. Initiation costs come as flat fees that are once off in nature. That is despite the size and length of the loan amounts, and initiation fees will be the same.
- ADMINISTRATION FEES
Administration fees may sometimes be charged separately from interest charges. In such a scenario, one will need to make an assessment of these costs and weigh the impacts of their loan value. Companies charge these as a way of recouping contribution towards the administration of their companies. Administration charges are recurring in nature, that is they are charged in small amounts that are paid every month.
- SERVICE COSTS
Service costs and administration costs have a slight margin, and the former is recoupment for expenses that the company incurs in collecting repayments. Service fees are also paid every month that will be part of the whole loan installments.
- PENALTIES AND LATE PAYMENT FEES
When your loan installment falls due, and your bank account does not have enough cash to settle. Facilitate a direct debit transfer, and you will be liable for paying penalties and late payment fees. Penalties are charged by the short-term loan providers on all late payments. Late payment fees are usually charged by your banking institution when a direct debit transfer fails due to insufficient funds.
For how long would i have to pay a short-term loan?
All the personal loans that would need an applicant to repay in a period within six months from the day of disbursement are classified as short-term loans. Short term loans are repayable from as little as a week to six months.
The period of repayment would vary with the need of the applicant, offer that is available and the size of the loan. Loans of smaller sizes tend to take shorter repayment periods, while those that are large take form of lengthy payments. Payday loans, shopping loans, quick loans, and instant loans are the most common types of short-term loans that have small repayment periods. When the loan term is less than one month, usually the applicant will be required to make a one-time payment.
Alternatively, the repayment can be made in installments when the term exceeds a month.
What is needed to obtain a short-term loan?
The National Credit Regulator makes it an obligation of financial institutions to obtain specific documentation and information from loan applicants. This is done in line with credit assessment and responsible lending practices.
Generally, short-term loan applicants are required to be South African citizens with regular income that is received through the banking system. The applicants will also need to have reached 18 years before making an application. In addition to these, the applicants should provide the following documents during the application process.
- South African national identity document
- Three months stamped bank statement
- Proof of residence
- Latest pay-slip from the current employer
How do I apply for a short-term loan?
Short-term loans are available on both online and paper-based applications. The applications can be made directly through the short loan provider, the loan broker who is paid by the loan company for facilitating applications and credit assessment on behalf of the company or a partner company who makes use of short-term loans for clients to obtain the loans.
The application process will need the applicants to submit their personal and financial information in addition to offering scanned copies of their documents.
Does my credit score matter?
The issue of credit scores is a universal requirement that short-term loans that service providers have to consider prior to issuing the loan. In line with the provisions of responsible lending, the loan service providers are supposed to consider this as part of their assessment and evaluation of new and old clients.
Although some companies may issue loans for bad credit, credit scores have a large impact on the size of the short-term loan, interest charges and the length of the repayment period. Applicants with a good credit rating will easily access short-term loans of higher amounts, lower interest rates and longer terms as opposed to those with low credit scores.
Lenders offering Short-Term Loans in South Africa
Informative books about Short-Term loans in South Africa
The Paper for the people
Latest news from South Africa, World, Politics, Entertainment and Lifestyle. The home of The Times and Sunday Times newspaper.
All about South Africa
The stories that affect South Africans, wherever they are in the world.
South Africa's premier site
Business and finance news, stock market data, economic analysis, personal finance and investment information.