Get a Payday loan to carry you through till month-end
Many South Africans use payday loans for emergencies or to tide them over until payday. Payday loans are short-term loans which require no credit check, can be obtained online and are generally approved and credited to your account in just minutes.
Although these quick loans can be helpful in some cases, in others they may not be a suitable solution. You should definitely not hurry to use such a loan to repay another short-term loan or for non-essential spending. It is best if you evaluate the benefits, costs and risks in advance.
Here you will find information and advice which will help you to decide if a payday loan is indeed the right choice for your individual circumstances.
Understanding Payday loans & how to use them
These are small loans which can help you get through the month when you do not have sufficient cash left to cover your expenses. Loan terms range between one and four weeks and loan amounts range from a few hundred to a few thousand Rand. In order to obtain the loan, you will have to sign a direct debit order agreement for the repayment of the principal plus the interest and fees. On your next payday, the total amount will be paid from your account to the lender's account.
It's possible to extend the term of the loan, but interest will continue to be charged and additional fees may be charged as well. That way, the loan will become even more expensive and more challenging to repay.
No Credit Check Payday loans
Most payday loans for emergencies can be granted without a credit check being performed. Even if the lender does run such a check, it may not be relevant to their decision as they may only require that you be able to prove that you can repay the loan using your monthly income. This is why payday loans are also referred to as bad credit loans.
The cost of an online Payday loan
Payday loans for emergencies are among the most expensive of all credit products available in South Africa. Interest is charged daily and this is one of the main reasons for their high cost. Additionally, some lenders charge an initiation fee as well as a service fee. If you borrow R1,000 for instance, you may have to pay back R1,275. The cost of borrowing may not seem super high, but the short repayment term may make things challenging for you.
Dangers of Payday loans
The fairly high cost of borrowing is the main factor to be careful about. You can, however, readily use this short-term loan once in a while when you need cash to cover an emergency. For instance, you can take out an online loan to pay for the repair of your car which you need for going to work and earning an income. A considerable chunk of your next month's income will go towards the repayment of the loan, but you should be able to manage.
However, these online loans are not suitable for using on a regular basis, especially for filling holes in your budget due to low income and high expenses. They will leave you with less cash during the next month and you will be forced to get into more and more debt.
How a Payday loan can affect your Credit score?
If you get into uncontrollable debt due to payday loans, this can have a considerable damaging effect on your credit record and prevent you from being able to access traditional credit.
You may be automatically rejected for loans by banks. You may get chased by debt collectors and sued by the lender. You can easily get blacklisted. Of course, such negative outcomes will result from defaulting on any type of loan. It is just that the risk of defaulting on payday loans is considerably higher. Generally, if you keep extending the loan, it will become ever more expensive and more difficult to repay as well.
Payday loans from Banks
It is a common misconception that only small independent lenders offer payday loans. The big South African banks have entered this market niche as well. Their payday loans are easier to get when compared with their traditional personal loans. At the same time, they are much more expensive. Typically, there is no difference between the cost and terms and conditions set by the banks and the smaller payday lenders.
Just like the other lenders, the banks will use a direct debit order to withdraw cash directly from your account. Banks typically give you much less room for negotiation for extending a loan.
It is a fact that all payday loans are risky irrespective of the lender that you get them from. Still, it is best if you shop around and compare different deals. This can help you save some money. You just have to ensure that you will be dealing with a registered credit provider with a good reputation.
Alternatives to a Payday loan
You should know that these instant loans are not your only option for getting out of a cash emergency. Consider some alternatives such as:
- Set aside a small amount of money to use in emergency - You can keep the cash at home or preferably in your savings account.
- Focus on building good credit - That way you will be able to qualify for a traditional unsecured loan which will be less expensive.
- Choose a credit card to use in emergencies - It is best if the credit card has low interest rate and low cash withdrawal fee.
- Use a traditional unsecured loan - Again, you can shop around for the best deal.
- Earn more money by taking up an additional job part time - This may be challenging, but it can be the best solution in case your monthly expenditure exceeds your income.
- Renegotiate the repayment of your existing loans - This is an effective method for reducing the size of the monthly payments and for increasing your disposable income.
- Apply for a consolidation loan - If you're looking to apply for a payday loan to pay off other overdue debts, rather consider getting a debt consolidation loan and merging all of your smaller debts into one larger and more affordable loan.
- Consider an overdraft protection program - With such programs, the bank will pay checks and direct debit orders on your behalf even if you do not have sufficient cash in your account. You will have to repay these amounts plus the charges for the service.
- Consider peer-to-peer loans - These are loans available from individual people and are easy to get. Such a loan may be more affordable compared to a payday loan.
Eligibility Requirements for a Payday loan
In order to apply for a loan, you will need:
- A valid South African ID Book
- 3 month's payslips
- 3 month's bank account statements
As long as you earn a salary or income from long-term contract or are self-employed, you can get approved for a payday loan with one of the South African lenders we have listed below.
PROs & CONs of a Payday loan
The main benefits of the payday loans are that they are quick and easy to obtain. They can be useful in cash emergencies as long as you are able to repay on time and in full on the repayment date. At the same time, they are expensive to use on a regular basis and can make a bad financial situation worse.