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Read this before you take a personal loan

By Faeza
29 July 2016

IN times of emergencies, or when there are unforeseen expenses to be paid, a personal loan can be very helpful. Easy to apply for and broken down in small repayments, it can be the answer to your problem if you’re in a fix – but be sure to take a look at the following

before signing on the dotted line:

DO YOUR HOMEWORK

Don’t simply take out a loan with the first bank you approach. Shop around and find out who can offer you the best deal. Often, the institution you already bank with can offer you more competitive interest rates. Don’t be shy to ask for a better rate. In addition, you need to choose a reputable institution, which is one where you are protected by the National Credit Act (NCA). Such institutions have to follow laws outlined in the Act. Avoid loan sharks and other informal micro-lenders,

AVOID LOAN SHARKS AND INFORMAL MICROLENDERS

Especially if they require you to leave your ID and bank cards with them – this is an illegal form of lending.

UNDERSTANDING LOANS

A personal loan can range from as little as R1 000 to as much as R150 000, and repayments generally range from six months to six years. Interest rates vary from institution to institution, and depend on the amount you’re borrowing and the period of the loan. The amount you borrow is fixed – and usually, you’ll have to repay that amount in fixed instalments over an agreed time. Often, the interest rate is fixed as

well. If there are any additional special rules governing the loan, ask your sales consultant for more information.

TYPES OF PERSONAL LOANS FROM WHICH TO CHOOSE

¦ SHORT- TO MID-TERM LOAN is the most common type of personal loan. With this type of loan, you can borrow larger quantities of money over a shorter period – although

the interest rates tend to be higher.

¦ THE LONG-TERM personal loan allows you to pay off your loan over a longer period of time.

¦ SECURED LOAN is a loan that is granted against an asset such as a home or car. If you are unable to repay the loan, the lender can attach and sell your asset to get their money back. Before deciding to give you a loan, the bank will look at your credit history.

USE A PERSONAL LOAN

Do use your personal loan for:

? Debt consolidation. Pay off debt with high interest rates.

? Home improvements, but only if  you can’t use your home loan.

? To further your education, if you don’t qualify for a student loan.

THE DON'TS OF PERSONAL LOANS

? Expensive jewellery you wouldn’t normally buy.

? Food and groceries.

? Student fees – a student loan will cost you less.

? Holidays.