Need a loan? Know who you are dealing with
If you aren’t sure where to get a loan, your best move is to evaluate your personal financial position first. Next, you need to educate yourself to avoid the traps set by unscrupulous money lenders.
Many of us know these dodgy business people as “loan sharks”. We’ve seen them in action as the fictional characters of books and movies, but they exist in the real world too and the internet has become their favourite playground.
Dishonest lenders prey on people who are desperate for money — those looking for emergency loans or payday loans — which is why you will find thousands of tempting ways to quickly and easily get cash in hand on the internet.
A payday loan, for example, is typically a small amount of money you borrow at a very high interest rate on the agreement that you will pay it back when you get your next salary.
It may seem a simple enough agreement, but borrowing money from just anyone can come at a very high price.
Not only can interest rates be extremely high, but you could be pressurised into borrowing even more money should you fall behind on your repayments. The end-result is a never-ending spiral of debt and loan sharks are known to get nasty and resort to intimidation if they don’t get what they want.
No matter how big or small the amount, if you borrow money it means you are incurring debt. You are also agreeing to repay the money within a certain time and at a certain interest rate. There may also be other conditions attached to the agreement, depending on where you borrow the money from.
The interest rate is vitally important in helping you understand what borrowing the money will actually cost you over the repayment period. African Bank’s 12% loan, for example, offers you peace of mind that your repayments will never change. It has a fixed interest rate with fixed monthly repayments. This makes it easy to work the repayments into your short-term or long-term budget.
5 things to think about before signing on the dotted line for a loan:
- How will borrowing this money now affect my finances in the future? You must be certain you can afford to repay the loan, perhaps in addition to other debt you already have. It is a big commitment, so there is no room for guesstimation … does this loan fit your budget?
- What do I need the money for? While you can use a personal loan for anything you want to, unlike a study loan or car finance, be sure you are not making the decision to borrow money to satisfy a whim.
- Is the purchase necessary now? Be honest about whether what you want to use the money for is not something that can wait until you have saved enough money to pay cash for it. Do you really need a loan?
- Can I afford this loan? Do not let your heart rule your head when answering this question. As much as you may want that holiday or new kitchen, if you cannot meet your repayments at the interest rate agreed upon, these dream purchases could turn your life into a financial nightmare. Be honest about your current situation and make the right decision from there.
- Am I dealing with reputable companies? Be especially careful of money lenders When you borrow money, you have to disclose sensitive information. Many money lending scams are fronts for identify theft. Not all online platforms can guarantee the security of your information either. Always do your homework and ensure that whoever you are dealing with is reputable.
5 tell-tale signs you are dealing with an unscrupulous money lender (moneyadviceservice.org.uk):
- There is a limited or non-existent paper trail – no contract or record of payments.
- What you signed for is not what you get. You may suddenly find the loan amount or interest rate has increased.
- They want your passport or bank card as security.
- They refuse to allow you to settle your debt.
- They resort to intimidation and threats.
While thousands of South Africans have fallen prey to loan sharks, they continue their immoral businesses unabated. The consequences for those in their grip can be far-reaching and devastating.
When deciding where to get a loan, remember that it is against the law for someone to lend you money if they are not registered with the National Credit Regulator.
It is always safer to borrow from a lender you are familiar with and which you know has a trustworthy reputation, like an established bank.