You may be familiar with the concept of a loan; in essence, you are borrowing money to be paid back with interest at a later date. But it’s actually much more complicated than that. There’s so many different lending institutions you can choose from: major banks like Absa, FNB and Standard Bank, or alternative financial institutions like Lulalend, Merchant Capital and Fundrr. Whether you borrow from a bank or an alternative financial institution, each loan has unique properties, terms and conditions. There are secured loans, unsecured loans, term loans, revolving loans, short-term loans, high-interest loans... The list goes on and on.
With all this variety, you should be taking out a loan that is personalized to suit your financial needs. There are many loans that serve a specific purpose like business loans, car loans, medical loans etc. Generally, each of these loan categories tend to have similar terms and competitive interest rates across financial institutions. This means that these loans are optimized for their purposes. For example, most home loans are 20-to-30-year term loans whilst most car loans are 60-month term loans.
Is all of this starting to sound like gibberish? Here at BudgetGist, we understand that choosing the right loan can be daunting to the uninformed consumer. That’s why we pride ourselves on being South Africa’s information hub for all things related to finance and money. We’ve compiled guides on everything you need to know about different types of loans so you can find a personalized solution to your financial hiccup.
A business loan can be a useful tool to help you grow your business. There are a variety of business loans on the market and it can be quite easy to find one that is personalized to your business needs in terms of loan repayment schedule, interest rate and affordability. Before applying for a business loan, you may want to draw up a business plan and gather your recent financial statements.
Reliable transport is a must in South Africa, and what better mode of transportation than your very own vehicle. Whether you’re looking for a reliable second-hand car or a brand-new luxury vehicle, coming up with the cash to buy a car by yourself can be near impossible. It just doesn’t fit into a majority of South African’s budgets.
Car loans usually have a maximum term of 60 months (about 5 years). They also have relatively high interest rates compared to other types of loans, so be sure to shop around for quotes. This could save you hundreds if not thousands of rands in the long run. Additionally, be aware that vehicle financing can have minimum salary requirements as well as balloon and deposit payments.
Already in debt? Consolidation loans can make your life easier by allowing you to make one payment instead of having to keep track of a number of smaller loans and lines of credit. Many banks and other financial institutions offer consolidation loan services where they will not only lend you money but keep track of your individual payments for you. This means you’re less likely to default on payments and if your consolidation loan has a low-interest rate, you may even end up paying less overall.
Having to rush to the emergency room isn’t fun, and neither are the long hospital bills you can find yourself stuck with afterwards. Medical loans allow you to borrow money to pay for medical bills that you may have not seen coming or your medical aid doesn’t cover. There are a few medical loans available in South Africa, but it is more common to find personal loans that cover medical expenses.
Let’s be real, unless you have generational wealth it can be near impossible to buy a home in South Africa. With the average property price reaching upwards of a million rand, it makes sense to take out a home loan. A home loan, or mortgage, generally has a much longer repayment period than other loans. On the other hand, the interest rates for home loans are generally lower than other loans. And at the end of the day, you’ll be purchasing an appreciating asset.
While it may feel safer to take out a home loan with a reputable, major bank like Absa or Standard Bank, there are alternative financial institutions like SA Home Loans. Make sure you really do your research and read all the fine print before getting into a 20-to-30-yearlong agreement.
Need a little cash to tide you over until your next paycheck? Payday loans allow you to borrow smaller sums of money for shorter loan periods, and generally at a very high interest rate. The loan amount you qualify for is usually based on your salary and is usually paid out much faster than other loans.
Apart from the payday loans available at major banks, there are so many smaller payday loan providers in South Africa. Therefore, it’s very important that you stay vigilant and carefully read over any terms and conditions before you find yourself paying exorbitant interest rates and added fees.
What’s the purpose of personal loans? Well, that’s personal! These loans are versatile and can be used for a number of different things like paying for an unexpected medical bill, paying for transfer costs on your new home or financing your dream wedding. Be careful though, the interest rate on these loans can be very high. And as with payday loans, there are a multitude of service providers and it’s very important to do your homework before applying for a personal loan.
Tertiary education can be exorbitantly expensive. The costs just keep adding up: tuition, textbooks, stationery, transportation, accommodation. Sorting out the financial burden can take a huge load off of your shoulders and leave you to focus on your academics.
Given that most students are younger, you may need a guarantor. This can be a parent or guardian who will shoulder the responsibility and give the bank a guarantee that the loan can and will be paid back. You may only begin paying back the loan when you’ve finished your degree or begin earning a minimum salary, while other loans may require you to begin paying back the interest while you study if you’re a part-time student.
Now that you have a better idea of the type of loan that will suit your needs the best, you can read about each loan in detail here:
Ideally, a loan should improve your quality of life, whether it’s used to finance a new home, car, pay off hospital bills or tide you over until the next paycheck. Therefore, it’s important to choose a loan that is affordable and fits your purpose, in other words, a loan with a reasonable repayment schedule and the lowest possible interest rate.
Before jumping into any contract, make sure you carefully read the terms and conditions. Make a note of all the things that are expected of you, such as your repayment schedule, a breakdown of the repayment amount, and whether or not you must provide a deposit and/or collateral. Additionally, try to calculate how much interest you will pay over the loan term. You can use this information to compare quotes from a few financial institutions before ultimately deciding which loan is the most affordable for you.
Lastly, talk to your banker or alternative financial institution representative about your options before making a final decision. They will be able to assess your financial situation and guide you through the process of making an application, as well as answer any questions you have about specific products. Ask lots of questions to develop a solid understanding of the loan terms and conditions. Don’t get caught off guard after you’ve signed on the dotted line!
It is easy to get lost in the heaps of information available online that may or may not be relevant to your situation. No matter the financial conundrum, BudgetGist is here to help! We are South Africa’s information hub for all things related to finance and money.
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