If you are one of the many South Africans who are considering obtaining a personal loan, then it is important that you educate your self on the topic, to see what is available on the market and if you will be able to afford the loan. It is important that you understand the differences between the different products. You get to main types of personal loans, unsecured and secured loans. In this article I will briefly explain the difference between the two main loan products.
First I will explain a secured loan. A secured loan is a loan where you will need to provide the lender with collateral to minimize the risk to them. You will find that a secured loan is in most cases a bit cheaper because the risk is a lot lower to the lender. The disadvantage of a secured loan is that the borrower is at risk. You will have to provide the lender with some form of security in the form of a car, home etc. If you are not able to repay the loan then you are at risk of losing your car or property. The advantage of this product is that they are easy to obtain and you can apply even if you have a bad credit rating.
An unsecured loan is a loan where you don’t have to provide the lender with collateral. You will see that the premiums are a lot higher than a secured loan because the banks are at higher risk. If you decide to purchase this product then it is important that you know that if you are not able to support the loan then the lender will take legal actions against you.
The disadvantages of an unsecured loan are that it is harder to obtain for such a loan and the rates are a lot higher than a secured loan. If you have a bad credit rating then I will advise you not to apply for this type of loan.
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Due to the economic climate of today it is clear that more and more South Africans are struggling with their finances and ending up with a bad credit rating. There are thus lenders in South Africa who caters for people with bad credit. These unsecured loans have higher interest rates and fees, but this is the only option if you have bad credit. It is of utmost importance that you do your homework on the topic to see which products are available on the market. We can be lucky that there are thus loans available for the people with a bad credit score.
If you are desperately in need of cash then there is something called a payday loan. This type of loan is usually paid into your bank account within 24 hours. The lender will then withdraw that money from your bank account on your payday. It is important that you know that this might sound very attractive but you should know that these loans are charged with heavy rates. And if you are not able to have the sufficient funds by the correct time then you will also be financially penalised. It is thus just a short term solution to your financial problems.
To Conclude. We can see that there are thus different types of personal loans with different purposes. It is important that you educate your self on the topic so that you can get the loan that will best suite your personal needs and budget.