For every financial emergency, you’ll find a loan product and bridging finance was designed for specific financial situations where individuals needed interim money while awaiting a large payout.
Essentially, it is a short-term loan secured against an income that is intended to be paid out in the near future. So, where pension bridging finance comes in, is during the waiting period for your pension fund to be paid out.
Why do you need it? Well, due to the nature of the loan, you’ll rapidly improve your cash flow since right now you have none. We all have costs and bills to pay throughout the month and in the event that you have been retrenched, dismissed, or simply resigned, those costs haven’t gone away and still need to be paid. Having access to cash flow will allow you to pay your instalments and meet your daily and monthly needs prior to receiving your lump sum payout!
If you find yourself in a position where you need access to your pension immediately, but are unable to get it straight away, then pension bridging finance is the answer.
What rates and costs are involved?
From lender to lender you’ll find varying rates all competing against one another. However, all rates are governed by the National Credit Act. Where some loans are structured with a daily rate, others are monthly depending on the nature of the loan. If it’s a fairly large loan with a long repayment term, as well as various pension funds or provident funds, then it could simply be a monthly rate.
How much it’s going to cost you all depends on your personal risk profile, the loan amount and other contributing factors that influence cost. Again, all costs strictly abide by the National Credit Regulator’s conditions concerning lending money, therefore you can have peace of mind at all times that you are protected where responsible lending is concerned.
Two costs you should be on the lookout for when applying for any pension bridging finance, firstly, the admin fee to draw up the loan agreement, and secondly, the monthly interest.
What does the application process involve?
Most lenders have an online application form when the times come to apply. You’ll also find obligation free inquiries where you can simply get information on the product before choosing to register for it!
As with any legal and financial process, there are a few requirements that have to be met before being considered for your pension bridging loan. If you have these in order, you certainly have less to worry about because soon you’ll have access to those much-needed funds in your bank account!
Make sure you have a valid ID document, two months’ bank statements and your most recent pay slip. These are standard for any loan type in the market. More specifically for this type of loan, you’ll have to provide the lender with your pension fund statement and a letter from your current employer confirming your employment and package details.
I’ve applied, what’s next?
You’ve sent all documents in and now the waiting begins! The first thing completed is the credit bureau check performed by the credit provider. They will assess your credit profile and decide whether you are in a position to take out this loan. Often, you can expect a phone call where a brief interview takes place simply to verify a few application items. Your report and interview feedback are handed to the credit committee at this crucial point for approval.
If you’re approved for your loan against your pension, the contract will be sent to you for perusal as well as your million-dollar signature! Return the agreement and wait patiently, soon your pension bridging loan amount will in your dedicated bank account.
How much can I borrow and how do I pay it back?
You’re typically able to borrow 10% (capped at around R32 000) of your nett pension or provident fund in the form of a loan.
Once you have furnished the lender of choice with all your documents, then the quickest turnaround time for a loan payout is 3 business days. This will differ if you there are any delays on your application such as missing paperwork or credit check issues. Speaking of credit checks, bear in mind that this will be done before any loan agreement begins the drafting process.
Is there a chance I might be declined?
When considering a loan, borrowing money of any sort, you should always be prepared. If you are well-prepared in terms of your paperwork, your credit score and your financial awareness with regards to affordability then you shouldn’t be declined at all.
There are, however, instances where you could be and it would only be to protect all parties concerned, you are one of them. If you are blacklisted, you don’t need to count yourself out of the running just yet since it’s not a hard and fast rule that you can’t apply, it simply adds a little strain to the equation. Your application will still be considered with all checks in place.
If you find that you have been declined for any reason, don’t fret! There are many financial products in the market that may be better suited, and a consultant can assist you with these options.
Last, but not least:
Make sure that you can repay your loan! You don’t want to end up in a position where your credit score is low, you are facing legal action due to non-payment and all the other things that cost a lot of money in the long run, where you could have made provision to afford the bridging loan in the first place. Hence, we always encourage individuals to please do their own homework on the cost before applying for a loan, to help determine whether you can afford to repay it or not.