Getting To Grips With The Loan Process


Being in the debt counselling business, we understand the financial struggle that many South African’s have to face on a daily basis with many being trapped in a cycle of spiralling debts and out of control loan repayments to cover unforeseen expenses.

With food and living costs at an all time high and the economy in dire straits, many ordinary citizens are being forced to take out loans to help with their basic living costs. In fact, a recent survey of nearly 20 000 Wonga SA customers revealed that 43% of respondents took out a loan to cover unexpected expenses, such as a car breaking down or emergency medical costs, whilst only 27% obtained one to purchase goods they couldn’t afford at the time. If you have a bank account, you will know the constant barrage of credit card and loan offers, but what are the pitfalls of loans, and what do you need to know before applying for one?

There are a variety of loans to choose from such as home loans, business loans, short-term loans and secured or unsecured (personal) loans. Knowing the difference can save you a lot of money further down the line and avoid the need for debt consolidation. A short-term (or micro-loan) is a type of unsecured loan (meaning it is not secured against any assets such as property and therefore has higher interest rates). With a secured loan (such as a home loan or vehicle finance) you ‘secure’ the loan against an asset which will be sold off in the event that you are unable to repay the loan, which gives you more favourable interest rates as there is less risk.

It’s vital to do your homework, shop around, and compare deals offered by several lenders, and of course, scrutinize the lenders themselves as there are many dishonest lenders who aren’t registered with the National Credit Regulator peddling reckless lending schemes. Avoid lenders who have lower qualifying criteria, as they charge much higher fees and interest rates, which will ultimately raise your chances of becoming debt-riddled and having to consider debt consolidation loans. Rent-to-buy deals, payday loans and short-term credit agreements are traditionally the most expensive loan options.

When it’s time to compare loans, you need to carefully consider the interest rate, principal debt, total repayment cost, repayment terms and other associated credit costs. If it sounds too good to be true, it probably is! Understand the loan agreement fully before signing it and do your calculations to check how different loan amounts and interests will influence your total money owed. There are several online loan calculators that can help you. Check for any ‘hidden’ charges and fees as you don’t want any nasty surprises when it comes to repaying your loan. It’s essential to calculate what portion of your salary will be deducted towards repayments and to make sure that you have enough money left at the end of the month to cover all your expenses. South Africans need to become more money savvy and look at clever saving tips if they are going to make it through these tough economic times.

When it comes time to apply for your loan you simply have to visit the lender’s office and one of the consultants will guide you through the process. You will need to fill out a loan application form, as well as provide the lender with your South African ID book, bank account statements and payslips for the last 3 months. Credit is assessed on an individual basis and will depend on your earnings, credit history and repayment track record. It’s best to start with a small loan to build up your credit history and to repay it on time. Credit cards can be a great tool for building a strong credit history, provided that you use them responsibly.

Don’t be disheartened if you’ve been rejected by a lender (usually because of a bad credit history or insufficient income), as there are several other alternatives. We offer debt review services that are tailor-made to suit your immediate needs and protect you from a bad credit rating, the possibility of your assets being repossessed, or your employer being forced to pay credit providers directly out of your monthly salary. For a debt-free life and debt advice on how to break the chains of economic slavery, contact one of our experts who will gladly take you through the best option suited to you.

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