Guide to unsecured personal loans for South Africans
Are you thinking of taking out an unsecured personal loan? With so many loans on offer from different South African lenders, the details can be somewhat confusing. This article breaks it down for you and makes it easy to understand what unsecured personal loans are all about. Additionally, you can use our loan calculator, as directed below, to help you with some necessary calculations.
Introduction to unsecured personal loans
What exactly are unsecured personal loans?
Well, you’re probably familiar with the term “personal loans.” A personal loan is just borrowed money from a financial institution such as a bank or credit union. You can use the money for anything, and common uses include paying for a
wedding or even
university fees and
home renovation.
What does it mean when a personal loan is unsecured?
It simply means that when you take out the personal loan, you don’t need to use your valuable property as collateral. In other words, you can apply for, and receive the loan without using your property (this can be your house or car, etc.) to secure the loan.
How do unsecured personal loans work?
As mentioned above, with an unsecured loan, there is no need to use your property or assets as security. That means you won’t lose your property if you fail to pay back the loan. However, and for this reason, unsecured loans usually have high-interest rates.
By offering higher interest rates, lenders protect themselves from the possibility of you failing to pay back the loan. Lastly, unsecured loans may also have a limit on how much money you can borrow.
Here is a general overview of unsecured loans in South Africa:
- Lowest amount you can borrow: R1000
- Highest amount you can borrow: R350 000
- Loan term: Normally, you’re given between 1 month to 84 months (7 years) to pay back the loan.
- Interest rate: The maximum interest rate for personal loans in South Africa is 27.5% per annum.
Besides personal loans, other types of unsecured loans include payday loans, lines of credit, and student loans.
When is the best time to apply for an unsecured loan?
The best thing about unsecured loans is you can use the money for anything, and you don’t have to pledge your house or car to secure the loan. However, it is wise not to take out a loan unless you really need the money.
After all, remember that borrowed money is not free money. You have to pay it back with interest. That being said, there are times when you can benefit from taking out a loan. The following examples are reasonable times to apply for an unsecured loan:
- When you have an emergency – Emergencies come in all shapes and sizes. Regardless of the emergency, you shouldn’t hesitate to borrow money when needed to cover a family or medical emergency.
- When you want to buy essential items – This could be something you need to use regularly to make life easier. Examples include a laptop, school books, electronics. You can even use the money to fix your car after it breaks down.
- To pay for something that brings value to you – This could be a holiday or a wedding. They are often expensive but worthwhile, and you may need some financial help to pay for them.
- To invest in something that brings profit – You can use a personal loan to invest in something that will make you more money.
- To consolidate debt – Unsecured personal loans are a useful tool for consolidating debt. Use the money to pay off all existing debt, which leaves you with only one loan, which is easier to manage.
Comparing secured and unsecured loans
The main differences between the two types of loans can be explained using the following points:
- Secured loans such as home and car loans require you to use your car or home to secure the loan. In contrast, unsecured loans do not need such security.
- There is no risk of losing your property with unsecured loans. But, if you fail to pay back your secured loan, you can use your house or car.
- Unsecured loans are likely to have higher interest rates than secured loans.
- Unsecured loans can limit the amount of money you borrow. They also have stricter requirements compared to secured loans; for example, you may not be able to qualify for some unsecured loan if you have poor credit.
Advantages and disadvantages of unsecured personal loans
Borrowing wisely means you also consider the pros and cons of the loan you plan to take out. Generally, an unsecured personal loan offers the following benefits:
- There is no security required. Hence, you won’t risk losing your valuable assets.
- You can use the money from the unsecured loan for any purpose.
- With all requirements in place, applying for an unsecured personal loan is an easy process. The application process can usually be done online by filling out an application form.
However, unsecured loans are also associated with the following disadvantages:
- They typically have higher interest rates.
- You may not be able to borrow larger amounts.
- The loan may need to be paid back over a short term.
How to choose the best unsecured loan for you
In your search for an unsecured personal loan that meets your needs, you’ll find it helpful to look at the following:
- Interest rate – While unsecured loans have relatively higher rates, you can still find a loan that offers an affordable rate. You also have to decide on whether you want a fixed interest rate or a variable interest rate.
- The amount of money you can borrow – There are two things to consider here. Firstly, decide on the amount that you can afford to borrow and repay. Secondly, find a loan that can give you the amount you need.
- Other costs associated with the loan – Choosing a loan with a lower APR (Annual Percentage Rate) will help to keep the total cost of your loan down. The APR includes the interest rate plus other additional charges, such as the service and initiation fee.
- Additional features – This involves finding out as much information about the loan you are interested in. As an example, you may discover that one loan requires you to pay for credit protection that covers you in case you die, lose your job, or become disabled. Another may charge you a fee if you decide to pay off your loan at a faster rate.
How to apply for an unsecured loan
Before applying, you need to check if you qualify. General requirements include:
- South African ID;
- a minimum monthly income (depends on the lender);
- proof of income. (Usually, bank statements or payslips issued in the last 3 months);
- a good credit history; and
- minimum age of 18 years
Once you have chosen a reputable and licensed finance provider, you can head over to their website. To help you with online loan applications, we have featured several options for you and a “Go to Site” button for each online lender. By visiting the website, you can fill out and submit the online application form.
Popular Question: Are there unsecured loans for bad credit?
Yes. Unsecured loans for bad credit are available, but the interest rates are often very high.
How to calculate monthly repayments with our loan calculator
Monthly instalments are a common theme with most loans. You take out a loan, and then you make payments to the lender every month until you have paid all the money back. Therefore, it is important to know how much you will be asked to pay back each month. This helps you to budget and to decide if you can afford the loan or not.
Our easy-to-use calculator helps you with that. Simply enter the loan amount you want to borrow and the amount of time you need to pay back the loan. Once you click on “Calculate Repayment,” you’ll know the expected monthly instalment.
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