A personal loan can be used for anything; covering unforseen expenses, going on holiday or getting your car fixed. Offering competitive interest rates and flexible repayment terms, a personal loan is your first choice when it comes to longer-term lending.

Many people in South Africa are in the same situation due to the higher increase in prices compared to the increase in salaries. When you find yourself stripped of cash, you can use one of the personal loans available in the market. These products are designed to provide an easy, quick and simple solution.

Find out how they work and how you can use them effectively.

Getting the cash loan you need

One of the fastest and simplest ways for getting the cash which you require is to use the online loans. These are offered directly on the websites of lenders, which you can find at the bottom of this article, along with complete information on the loan including interest rate, fees and term.

You can select the loan amount and calculate exactly how much you will need to repay. The registered online lenders operate under the same rules of the National Credit Act as those offering loans in brick and mortar offices.

As long as the lender is NCR registered, your rights as a borrower are fully guaranteed.

In order to apply for an online loan, you need to fill out the form on the website of the lender. Once the lender gets your personal details, they will perform a credit check. If you get approved, you will receive a set of documents including the loan agreement. You need to sign and documents and fax them. Alternatively, you can scan them and send them via email. Once the agreement has been signed, you will receive the cash in your bank account.

You will receive your money in just a few hours

The South Africans who use online loans receive their money quite quickly. Usually, the cash will be in your account on the next day. Many lenders guarantee receipt within 24 hours, but it is worth noting that this depends on your bank as well.

Understand the loan fees & interest rates

Before you take out an online loan, you should consider several other important factors in addition to the receipt of the granted sum. The first one is the interest rate. It is typically high as the loan has a short-term. You have to take into account the fees charged as well. Calculate the total cost of the loan and confirm that you will be able to repay it.

You should definitely take advantage of the protection mechanisms set by the National Credit Act. The interest rates charged by lenders must not exceed a set upper limit. If a lender sets a higher interest, you can readily move to the next one. Additionally, lenders present the full details of every personal loan so you will be able to analyse its affordability with ease.

You can also use the disclosed information for finding the most affordable loan there is.

You have to make all necessary provisions for the repayment of the personal loan that you take out in advance. Plan your monthly budget so that you have sufficient cash left for repaying the loan. Manage your finances strictly and avoid getting things which are outside of your budget.

It pays off if you plan for emergencies in your budget as well. That way, you will have the highest chances of repaying your debt in full on time.

All South African micro lenders are required to follow responsible lending

The principle of responsible lending is defined in the National Credit Act and all lenders in South Africa must follow it. Under this principle, lenders should grant loans only to applicants who can afford to repay them. In order to determine the affordability of a loan for an applicant, the lender evaluates him based on his gross, net and disposable income.

If you have a high gross income and a good amount of debt at the same time, your chances of getting approved will be lower. Hence, the three forms of income are equally important.

It is up to every lender to determine how much income the applicant must have left in order to repay the personal loan. Basically, each individual lender sets an approval limit for personal loans. This is not regulated by the National Credit Act.

The situation is different with the home loans, for which approval is granted only when the monthly loan payment is lower than a third of the applicant's gross income.

Responsible lenders run a thorough check on personal loan applicants

The applicant's evaluation is based on his income and on the information provided by the credit bureaus. That is why you must be extra careful and diligent about the management of your finances and of your debt, in particular.

What are your personal cash loan options?

There are two main types of personal loans based on the term. The term is a major determinant of the maximum loan amount which can be granted and of the repayment structure of the loan. Consider the two main options available to you.

The short & mid-term loans are the most popular personal loans

Their term ranges from 30 days to 10 years. These include fast cash loans, payday loans, car and boat loans and loans for financing small purchases. The credit cards and overdrafts belong to this category as well, even though they are short term credit lines rather than loans.

The size of the short and mid term loans ranges from as little as R100 to as much as R30 000. In certain circumstances, borrowers may be able to take out even more. The maximum amount which you can borrow depends on your ability to repay the loan. In turn, this ability of yours will depend on your current income and expenses. Since most of these personal loans are unsecured, they have fairly high interest rate. The rate is set based on individual factors as well such as the credit risk of the applicant.

The higher it is the higher the interest rate will be.

The long term loans have a term of over 10 years

The loan amounts are quite large. Most of the long term loans are secured. They are backed by a valuable asset which the lender can repossess in case the borrower defaults on the repayment of the loan.

This asset is typically the borrower's house

This is the type of collateral used for the main long term loans - home equity loans and debt consolidation loans.

In conclusion, personal loans are easy to obtain as long as you have sufficiently high income, fairly low debt and good credit history. They are highly useful tools to use in cash emergencies and for the financing of major purchases. At the same time, they are not a good solution for repaying existing debt as they come with higher interest rates compared to secured loans.

If you struggle with the repayment of your debt, you should consider debt counselling and debt consolidation.