How to choose the best loan for you
In life, it is how you respond to change that will determine your success. And change is constant. You need different things today than you did 10 years ago. In 10 years' time, you will need different things as well.
You'll most likely require a loan at some point in your life – whether it's to invest in a home, buy an engagement ring, or open a small business. But be warned: not all loans are created equal. It's important to understand the different kinds of loans out there before you decide on the loan for you. Also, today, taking out a loan during the Lockdown comes with new challenges. Knowing your loan options will help you make the right decision.
So, before applying for a personal loan, take some time to understand and compare loan options, their benefits, and different loan features:
- A personal loan allows you to select either a short or long repayment period. A short-term personal loan is a great option if you need a small cash injection. But bear in mind that these loans usually have a higher interest rate. A long-term loan is for larger amounts and allows for payments over several years. This means smaller installments and a lower interest rate. African Bank offers personal loans of up to R250 000, with flexible terms and fixed repayments which allow you to manage your budget. Click here to find out more.
- A fixed-rate loan assures you that the interest rate will not fluctuate during the lifetime of the loan. African Bank's 12% loan gives you peace of mind knowing that your monthly repayments won't change.
- Payday loans are short-term loans that usually require repayment within 28 days. These loans are usually very expensive and if you miss a payment, you will be charged a higher fee. This is an example of bad debt.
- Debt consolidation loans are a simple way of paying off multiple debts, combined into one loan. Your bank will settle your debt and then you will repay your bank, meaning you will make only one monthly payment to the bank, often at a better interest rate. Combine up to five loans into one with African Bank's Consolidation Loan and also "choose your break": Select when you would like a one month break in repayment.
- Business loans are similar to a personal loan, except that the loan is taken out in the business' name. A wide variety of small business loans are available in South Africa, so do your research in terms of payback terms and interest rates. This is a good option for the early days of a new business.
- Home loans can be tailor-made for your requirements and there are several options available from home loan providers. Some of these include:
- Fixed-Rate Home Loan: Similar to the fixed-rate personal loan mentioned above, a fixed rate home loan protects the borrower from increasing interest rates.
- 100% Home Loan: Popular for first-time home buyers, this loan does not require a deposit.
- Variable Home Loan: When the interest rate fluctuates, so does the repayment.
- Capped Rate Home Loan: This type of home loan is often difficult to qualify for – it offers the benefits of a Variable Home Loan rate and protects you from increasing interest rates with a predetermined "cap" rate.
- Step Down Home Loans: Available to individuals close to retirement age, this type of home loan sees the interest rate declining every year or even every six months.
Remember, the type of loan that you need and ultimately take out depends on where you are, and where you want to be. But there are also a few conditions that you have to meet before successfully applying for your loan.
Factors to consider before applying for a loan
Before you apply for a loan, we recommend that you familiarise yourself with your financial standing. Ask yourself the following questions:
- Have I paid off my debts?
The ability to manage your debts and being disciplined to pay them off on time will certainly work to your advantage. Not only will ensure that your loan application is successful, but you will also find it easier to pay your debts timeously.
- Do I have the necessary documents?
Not submitting the correct documents will delay the loan application process. Contact your bank early on to find out which documents you need, and make sure that you have them before starting your application. Submitting the correct documents on time will also ensure that your loan is approved.
- Have I checked my credit rating?
Check your credit rating to find out where you stand and what kind of loans you can apply for.
Whatever loan you opt for, it's important to know your rights when applying. Click here to read our blog post which explains the process from the application for credit, right through to termination of the credit agreement.