Personal loans are often referred to as signature loans since you do not have to place any asset as collateral but place only your signature on the loan agreement.
They are used for meeting general personal needs of the borrower. You can use them for financing purchases, holidays, home improvements or the schooling of your kids.
Generally, there are no restrictions to the way in which you can use the funds granted do you.
Personal loans are unsecured loans
The borrower does not place any kind of asset, which the lender can take over in case of default. The lender relies solely on the promise of the borrower that the debt will be repaid. Since lenders assume higher risk with these loans, they charge higher interest rate as well.
Unsecured personal loans are not only more expensive compared to secured loans. They are more difficult to obtain as well.
The fact that these loans are unsecured does not mean that in case of default, there will be no consequences for you.
The lender will transfer the debt to a debt collection agency which will try to negotiate repayment with you. This will automatically bring your credit rating down and can get you blacklisted.
The agency can file a lawsuit against you.
In this case, it may be allowed to take over assets of yours which will be liquidated so that your debt is settled.
Hence, personal loans should not be taken lightly.
You can borrow as much as R100,000.
The personal loan amounts can vary from as little as R1,000 to as much as R100,000. The loan amount which the lender will extend to you depends on your current income, expenditure, credit score and credit history.
Borrowers who have high income and fairly low monthly expenditure plus good credit score and credit history can expect to be offered larger loan amounts.
Additionally, lenders tend to offer larger amounts and better terms to existing customers. Of course, it is up to you to decide how much you need to borrow.
It is best if you do not take out more money than you need.
Most personal loans have a repayment term of at least 12 months.
The maximum term is usually 120 months. When the term is shorter, the total cost of the loan is lower since interest is charged for a shorter period of time.
If you go for a short term loan, you will save money. However, in this case, the monthly instalments will be higher as well.
Your best bet is to choose a term which makes the monthly payments perfectly affordable to you and gives you some extra income left for maximum flexibility.
Compare personal loans from different lenders.
You should definitely compare personal loans from different lenders to pick the best deal. Do not miss to check what your bank has to offer. Often, banks offer special deals to their existing clients.
When you are comparing loans, you have to focus on the interest, total cost, and repayment schedule. The loan must be perfectly affordable for you to repay. If not, you can borrow less or search for a loan with even lower interest.
Finally, you should check your credit rating before you apply for a personal loan and ensure that it is sufficiently high to get you approved.