Personal loans

Personal loans

How do loans work?

A loan is a financial product that allows you to borrow a sum of money and repay it over a specific period of time with an interest rate. 

In South Africa, loans are regulated by the National Credit Act 34 of 2005 (NCA). This law sets out the rules that financial institutions must follow and protect consumers against unfair practices. The National Credit Regulator is responsible for ensuring that the rules are followed. 

Basic characteristics of a loan:

The principal: The amount of money requested from the bank or lender. It doesn’t include fees or interest.

Repayment Term: The period until the full amount borrowed with fees and interest.

Installment: The periodic amount you’ll pay as part of the repayment term.

Interest: The most important aspect of a loan. It’s the price you pay to access this amount of money

Types of loan

In South Africa are many types of loan

The first way is to apply for a personal loan. This type of loan works very simple. You have to borrow a sum of money to a money lender and repay it over a period of time. However, you’ll have to return it with an interest rate through monthly payments. 

Another type of loan is Short-term loan, that allows you to get money to cover unexpected expenses. Normally, Short-term loans are repaid over a shorter period of time than traditional loans. 

Revolving loans are different from personal loans or Short-term loans. In this type of loan, the final institution grants you a credit limit, and then, you can use this money up to your credit limit. 

An overdraft is a short-term credit facility linked to your current account that allows you to spend more money than you have available. And then, when you deposit money into the account, the negative balance is reduced by the amount deposited. 

In addition, there are banks that offer specific loans for buying a home, buying a car, carrying out home improvements, paying for education, or covering medical expenses and treatments.

Requirements to request a loan

The most important requirement is to be 18 years old in addition to having a valid identity document (normally South African).

Furthermore, you have to prove that you have an income and a bank account. You also need to show that you can repay the loan. The bank must check that you can afford all the monthly installments. 

If you don't have a good credit history, banks may refuse your loan application.In South Africa, the National Credit Act requires lenders to assess whether you can afford to repay the loan before approving it. To do this, they take several factors into consideration, such as your income, monthly expenses, existing debts and whether you have repaid your previous loans on time.

How to choose a loan

Before applying for a loan, it is important that you compare different options and carefully consider each offer. The main factors you should take into account are: the amount you need, the interest rate, the fees, the repayment term and the monthly installments. You can use Credilemon to compare different offers and find the ones that offer the amount to want.  

It’s also important to be clear about what you want the loan for.

Do you need a specific amount of money to cover a major expense and would you prefer to pay it back gradually through monthly installments? Perhaps your best option is a personal loan.  If you need a small amount of money to pay for an urgent, one-off expense (such as an unexpected bill or repair) and plan to pay it back quickly, the best option is a Short-term loan. 

But if you’re looking for flexible access to credit rather than receiving the full amount in one go, we recommend opting for Revolving loans. Finally, if you need to cover a one-off shortfall in your bank account, you might be interested in Overdrafts, which are a good option for covering a payment when your account balance is insufficient.