How to Get a Loan in South Africa

You are not supposed to be an expert in finance in order to obtain a loan.

Still, if you have never applied for a credit product before, you should learn how the process works and what you need to do to get the best possible outcome.

Choose the Type of Loan

There is a variety of loan products to select from. They fall into several major categories. You have to decide what you need exactly in order to determine which type of loan will be most suitable for you in the particular situation.

Check out your options:

• Car loans - These are designed especially for the purchase of a vehicle.
• Home loans - This group includes loans for purchasing a home and ones with which you borrow against the equity which you have in your home.
• Personal loans - These are unsecured loans whose size is determined by your earnings and by the repayment term.
• Business loans - These are designed to provide finance for starting and running a business.
• Student loans - They help university students to pay their tuition fees and often to cover other expenses such as those on accommodation, travel and books.

Choose the 'right' Lender

There are many credit products which fall into each of the categories described above. Your task is to shop around and compare the deals offered by different lenders. It is important for you to focus on reliable lenders with excellent reputation. You should also consider specialisation. The lenders that specialise in student loans, for instance, will most likely offer the best bargains in this category.

The large commercial banks are the primary choice for most borrowers. However, it will be beneficial to consider smaller lenders as well since they may be able to offer a more affordable product. When you compare loans, you should focus on the interest rate, total cost, repayment term and instalments.

You can consider alternatives to borrowing from a registered credit provider. You can obtain a loan from a family member or a friend. There is also the peer-to-peer lending which enables you to borrow money directly from private individuals. In any of these cases, the loan features and the repayment terms have to be put down in writing.

If you have been rejected for loans by the big banks, you may be tempted to borrow from lenders who have low qualifying criteria, but charge high interest rates and fees. It is best if you avoid such lenders and their credit products since the risk of you getting into debt will be very high. Traditionally, the payday loans and to rent-to-buy deals have been the most expensive of all options for borrowing.

Your Credit History

Each individual has a credit record showing the person's borrowing and repayment history. But what if you have never used a credit product before? The best way to go is to start small. You should borrow a small amount of money the first time around and repay it promptly. Then you can go for a slightly bigger loan and so on. The credit cards are highly useful for building a strong credit history, as long as you use them responsibly.

You can obtain a credit report from TransUnion or any other South African credit bureaus. You simply have to request it online. Check out the details and determine whether you have used enough credit products and whether you have been a reliable borrower. If there are any errors in the report, you must request to have them fixed so that you can improve your chances of obtaining a loan.

Loan Assessment

You should never pick a loan just because it seems attractive or just because you are in a hurry to pay late bills. You have to evaluate it carefully. Check out the interest rate and other costs. Find out whether you will have to pay monthly instalments or pay the principal plus charges at once. Learn how you will make the payments. Many lenders require you to set a direct debit order. You have to understand perfectly how the loan will work out before you sign the agreement.

You should do some important calculations before you decide on a deal. You should check how different loan amounts and interest rates will affect the total amount of money which you will owe. You can readily use an online loan calculator to help you with this task.

You need to calculate what portion of your income will go towards the repayment of the loan. It is essential for you to have enough cash left to cover your monthly expenses plus a few small spoils which make life easier. Generally, you should never borrow more than you really need.

Loan Application

You can readily apply for a loan after you have chosen the ideal type of loan, compared several different products, checked your credit report and done the calculations. Now it is time to go to a lender and make an application. You simply need to visit the lender's office and explain how much you want to borrow and why. The consultant will take you through the whole application process. In addition to filling out an application form, you will usually be asked to provide bank account statements and pay slips for the past three months.

Alternatives

If your application is rejected, you should not give up. You should ask why the lender has denied it so that you can make improvements in the future. The most common reasons for rejection include insufficient income for the repayment of the loan and a bad credit history. There are different ways in which these issues can be overcome. One of the most effective methods is to obtain the loan with a co-signer who has sufficient income and good credit history.