Get a Personal loan in South Africa – even if you have Bad credit
Personal loans for bad credit can be obtained by those that are self-employed as well as those who are blacklisted or have no credit history at all.
When you have bad credit, it is quite challenging to obtain an unsecured loan. At the same time, you may have an urgent need for a quick loan in order to pay for car repairs, groceries or the school fees of your children.
What to do, if I have no collateral for a loan?
If you cannot place an asset as collateral to get a secured loan, what can you do? You can get an unsecured loan for people with bad credit. You just need to look at the different alternatives and pick the best one for you.
How bad is your Credit history?
It is always best to go without taking out an unsecured loan. This is because these credit products traditionally have some of the highest interest rates in South Africa. If you can place any kind of asset as collateral, you may be able to get a secured loan with lower interest rate. The asset does not necessarily have to be your house; it can be any other asset of value.
What is a Car Title loan – for people with Bad credit?
One option is to use your car as collateral. If you have paid back a considerable portion of your car finance, you may be able to obtain a car title loan. In this case, you place the equity which you own in the vehicle as collateral.
That way, you can secure a sufficient amount of cash at a lower interest rate and pay lower monthly installments.
Assess the risk of a loan
If you fail to repay the loan, you can lose your car. This, in turn, can have serious implications on your daily life and on your work as well. If you cannot go to work, you will not be able to earn income and this will have a huge negative impact on your finances.
There are other assets which you may place as collateral. Some lenders accept investment portfolios and instruments. There are those who work with smaller physical assets of high value as well.
Just make sure that the lender who you will work with is registered and adheres to the responsible lending policy.
Bad credit loans with a co-Signer
You will have the best chances of getting an unsecured loan with bad credit if you apply together with a co-signer. You apply jointly and share the responsibility for repaying the loan.
This means that if you fail to repay the loan, the co-signer will have to do it. The co-signer must be a person with sufficiently high income and low debt-to-income ratio and with a good credit record.
Getting a co-signer is not easy, however. This is because this person will assume a very high risk. They will have to repay the loan if you are unable to do so irrespective of the reason that you are unable to do so. Even if you get injured or ill and you are unable to work, the co-signer will still be responsible for the repayment.
The repayment of your loan will reduce the disposable income of the person and increase their debt-to-income ratio. In this way, they can get into debt and become unable to qualify for any other credit themselves. You have to take these factors into account when considering the use of a co-signer.
Unsecured Personal loans for Bad credit in South Africa
There are lenders specialising in the provision of unsecured loans to borrowers with bad credit. These financial companies typically have very low qualifying criteria. At the same time, their personal loans tend to be quite expensive.
It is possible for the interest amount and fees to exceed the loan amount. Such expensive credit products should be avoided.
Many of these companies focus on so called predatory lending, also known as loan sharks. Their target group consists of people with bad credit who have been rejected by many lenders and are desperately looking for a loan. If you deal with such a lender, you will not get much flexibility or room for negotiation.
If the loan is too expensive for you to repay, you may end up in a worse situation than the one you are in now. You should work only with registered credit providers with excellent reputation.
How to choose a Bad credit loan?
In addition to applying the affordability criteria, you have to consider whether and how the new loan will improve your credit record.
You should try to use a loan which will be reported to the credit bureaus. That way, if you repay it promptly, your credit will improve and you will be able to borrow more money more affordably in the future. The choice of lender is extremely important when looking for a bad credit loan.
Bad credit lenders to avoid
You should avoid lenders which are not registered, loan sharks and lenders that require collateral but have unfairly short repayment terms.
Alternatives to Personal loans for Bad credit
You can also consider special programmes run by the government or the local authorities which are designed to help people with limited means.
Payday loans are always an option, but you have to be absolutely certain that you will be able to repay the loan on your next payday without having to take out a second loan. Extensions on payday loans almost always spiral out of control and make a bad financial situation worse.
If you can borrow from family and friends, this will be your safest and most affordable option but make sure to get your agreement on paper.