Personal loans provide a real solution to keep your finances afloat this holiday season, provided you go in with your eyes open. In this article we tell you how they work, what you need before you apply and what to be aware of when lending money

The holidays are almost upon us. And while we all want a bit of extra fun while re-charging the batteries, holidays can place unnecessary strain on your personal finances – those ice creams on the beach and pressies for the family really do all add up quickly.

We know from our own survey last month that 60% of you already spend more than you earn and believe that you could be heading for financial trouble.

Usually a Christmas bonus helps get over the hump but this year, bonuses don’t seem to be the order of the day. So now, you’ve got no life line and still have to get through the holidays – what do you do?

A personal loan can keep you afloat these holidays, provided you go in with your eyes open. Not all loans are the same, so you have to be very careful before you just borrow money.

Here are our three top tips for taking out a personal loan:

1. Understanding personal loans

Personal loans are small unsecured loans, which means you don’t borrow against your house or vehicle. You can borrow anything from R1,000 to R150,000 to pay for anything from a holiday to covering your year’s debt. Personal loans have much shorter terms than home or vehicle loans meaning you pay them off over a shorter period of time.

You can get a personal loan from a bank, financial institutions and other credit providers such as those dodgy loan sharks (‘mashonisa’). More on that later.

2. Get the inside scoop

The National Credit Act (NCA) protects consumers in South Africa and is one of the strictest in the world.  Even so, there are a few things you need to be aware of:

  • Micro-lenders and loan sharks –Some micro-lenders are registered and will comply with the NCA’s requirements to ensure the consumer is able to afford the loan. Loan sharks (‘mashonisa’), on the other hand, are not regulated and will offer you the amount you need, perhaps without the documents required but at an exorbitant interest rate (sometimes over 100%).
  • There should be no cost for applying for a personal loan, but some loan sharks do try to charge you– even if you are unsuccessful in your application. Make sure what the terms of the specific provider are before you apply!
  • It is illegal for anyone to keep your South African ID, passport, bank card or bank PIN number until a loan is repaid.
  • Applying for personal loans often and with different providers will affect your credit score negatively.
  • Shop around and read the conditions so that you are not surprised by any hidden fees or conditions.

3. Find out how much personal loans cost

Interest rates on a normal personal loan are regulated by the NCA, but will still be much higher (around 60% per year) than interest rates on home loans and vehicle finance.  The shorter the period of the loan, the higher the interest rate you will pay.

To calculate just how much you’ll be expected to fork out for your loan, try our personal loan repayment calculator here.

Don’t gamble with your financial health or credit record, use a reputable personal loan provider – get a loan from our valued, trusted and NCA compliant partners.  That way you can rest assured that you’re not signing your kidneys away just so you can fund your summer holiday.