Different types of loans to help you get ahead
Most people will require a loan at some point in their lives – 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. Knowing your loan options will help you make the right decision.
Before applying for a personal loan, take some time to understand and compare loan options, their benefits and different loan features:
- With a Personal loan you can select either a short or long repayment period. A short-term personal loan is a great option if you need a small cash injection. These loans, however, usually have a higher interest rate. A long-term loan is for larger amounts and allows for payments over a number of years. This means smaller instalments 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 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.
- Vehicle finance is the best option when it comes to buying a car. You can choose between a fixed interest rate (explained above) or a linked interest rate, which is linked to the country’s current interest rate. With a linked interest rate, you can expect your car repayments to fluctuate from time to time. Finance terms usually range between 12 and 72 months. The longer you finance the vehicle for, the lower your instalments will be. There is also the option of a “balloon payment”, where you pay a final lump sum once you get to the end of your loan term. This allows for lower monthly instalments but could cost you more in the long run – it’s wise to do your research first.
- Home loans can be tailor-made for your requirements and there are a number of 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.
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.