A personal loan is handy every once in a while. It helps you out when you find yourself in a complicated situation. Yet many people, mainly who have never taken out a loan before, often try to avoid applying for a personal loan as they are afraid of debt. However, if you have done your research and are disciplined, a personal loan isn’t as bad as it might seem. And there are financial advisors who can assist you in making the right financial decision for you and your needs.
Below are helpful guidelines that can enlighten you on everything you need to know before applying for a personal loan.
Basic personal information
Every authorised financial service provider will need your personal information. That personal information would include:
- To qualify for a loan you should be 18 years or older
- Provide the lender with your South African identity document (ID)
- You need to earn a minimum of R5 000 per month
- A clear credit profile is important
- Three months of bank statements or your recent payslip
- Your banking details where you receive your salary
- A document confirming your residential address
Check your credit profile
When applying for finance it would be advised that you check your credit score before approaching a lender. Understanding your credit profile and how it can affect you is very important. There are a number of sites which can give you your credit score.
A good credit profile is important as it shows lenders that you would be a reliable client and a lower risk for them. Most personal loans that are being offered are unsecured meaning there is no collateral. This is why your credit profile is important when needing a loan as it works in your favour. If your credit profile is above 720 you are seen as someone who has a high credit profile and is, therefore, a lower risk. However, if you have a score of 620 or less you are seen as a high risk which can make it difficult for you to receive financing as lenders won’t easily trust that you will pay back the money that you were loaned.
Even though you have a bad credit profile, there are ways in which you can improve your credit score. Finding ways to improve your credit profile will not only help you get a loan in the future, but it will also teach you how to take care of your finances.
If you need to clear your credit profile, the best thing would be to pay off your monthly repayments on time, always make sure you don’t reach your credit card limit, and if you have credit cards that you don’t need, it would be best to close them once you have settled those accounts.
When applying for a personal loan, you have to note that your application could be rejected in cases where you are under debt review, have a very low credit score, have filed for bankruptcy, are insolvent, or under administration.
Know why you need the loan
You need to know why you need the loan and how much you need. Make sure you don’t take out a loan that you can’t afford because it’s important you pay your monthly instalments on time, every month. Many people take out personal loans and use them for hospital bills, to clear up outstanding debt, pay for their wedding, vacation or for an emergency.
Short-term or long-term loan
You have an option to take out a short- or long-term loan. A short-term would normally be repaid within 24 months whereas a long-term loan can be paid over 72 months. The benefit of a short-term loan is that you can repay the loan amount much faster, but you need to keep in mind that you’re going to pay a higher instalment. A long-term loan is paid off over an extended amount of time. Long-term loans normally have a lower interest rate than short-term loans. But bear in mind that you pay interest for a longer period of time when you have a long-term loan.
Advantages of a personal loan
With a personal loan, you can decide how long you would like your repayment terms to be. Your repayment term starts from 24 to 72 months. You can also get a loan with fixed rates which won’t be affected by interest rate changes. To make things easier, you can fill in your loan application in the comfort of your own home. Lenders have made it easier for their customers by allowing you to either call in or do it online. If you need to calculate how much your monthly instalment would be, you can use a personal loan calculator which will help you work out how much you’re going to repay for your loan.
Even though the lender will look at your affordability before giving you a loan, you can now make your own calculations using the calculator. Lenders also have a protection plan in the event of death, diagnosis of a dread disease, and permanent or temporary disability. However, you will need to forward proof from a medical practitioner.