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Common Questions about Personal Loans

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Common questions when you need help to make ends meet

Other than being hugely successful Walt Disney, Mark Zuckerberg, Richard Branson, Sergey Brin and Larry Page all have something else in common – they all borrowed money to take advantage of an opportunity. Not all of us need a loan to launch a global entertainment, social media company or search engine but occasionally we may need a little help to pay for a qualification or not miss out on a once-in-a-lifetime chance.

Walt Disney cajoled a friend into lending him a camera, Richard Branson borrowed money from his mother and Facebook owes at least some of its success to the friends who lent Mark Zuckerberg money. Sergey and Larry asked both their friends and family for the money they needed to rent a garage and buy some servers. Of course it’s not always ideal or possible to borrow from friends and family when opportunity knocks. That’s when taking a personal loan may be a consideration.

But how do you go about applying for a personal loan? What documentation do you need? How quickly can you get the money? Here, we answer these and some other commonly asked questions.

How difficult is it to apply for a personal loan?

Applying is usually fairly quick and straightforward and can be done online or through a call centre.

You do need to be aware that the credit provider needs to carefully check that you can afford the loan. This process is regulated by the National Credit Act and involves following a series of steps including confirming your credit score, income, existing debts, the ratio of total debt to income and any other expenses or financial commitments relevant to your application.

Credit providers access your credit score from one of the four credit bureaus. You can too and are entitled to one free credit check a year.

The basic documents you will need when you apply for a loan are:

  • Proof of identity in the form of a clear copy of your South African identity document.
  • Proof of residence such as a recent rates or electricity bill or similar document confirming your residential address. If you are unable to provide this, you will need to submit some other form of confirmation such as an affidavit from your landlord.
  • Proof of income. This is as simple as providing copies of recent payslips or three months’ worth of bank statements.

Be aware that criminals sometimes pose as legitimate companies to try and get you to provide your details or defraud people. Only provide personal information through recognised channels such as a short code on advertising, the call centre or website or an e-mail from a verified source.

While there may be an initiation fee when applying for a loan, you have the option of this being covered in the amount you borrow. Legitimate companies will never ask you for a deposit in order to secure a loan.

If you have any doubt whatsoever about a loan offer, always contact the company to check. More information on how to spot scams is available here.

How quickly can I get the loan?

Once your application has been approved and you’ve submitted all the paperwork you could get the money within 24 hours.

Do I pay the same interest on all personal loans?

No. Interest rates vary depending on a number of things including the kind of loan you get, where you get it and your creditworthiness.

What is the term of the loan?

It depends on the credit provider, the amount you borrow, your financial position as well as your preference for repayment. Terms can vary and generally providers offer terms of up to six years.

The longer the loan term the lower the monthly repayments will be, but remember you will also be paying interest on the amount you borrowed over a longer period.

Can I pay off the loan before the term ends and are there penalties?

If you do get a windfall, such as a bonus, it is a good idea to try and settle debt. Paying off your loan earlier will also save you some interest. There are no penalties for settling before the end of the term.

Do I have to give a specific reason for getting the loan?

No. Although providers can and do ask how you intend spending the money, this is for market research purposes. Once the loan is approved you can use the money for whatever you want. We, however, would always recommend that you borrow for a specific purpose and use the money for this so you get the optimum benefit from the loan.

Is the interest rate fixed for the term of the loan?

Interest rates can be fixed or variable. Fixed interest rates stay the same for the entire term of the loan. Even if the Reserve Bank increases the interest rates, you still pay the same. The advantage of fixed rates is you know exactly how much you need to repay each month.

As the name suggests, variable rates can vary during the course of the loan, depending on whether the Reserve Bank raises or lowers interest rates. As there is an element of risk to you in taking a variable-rate loan, these rates are generally slightly lower than fixed rates.

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Loan repayment terms range from 24 to 72 months. The maximum interest rate with regards to a DirectAxis Personal Loan is 27.75% per annum (compounded monthly). Your rate and initiation fee will be determined according to your personal risk profile.
An illustrative example of a loan at an interest rate of 27.75% per annum would be: Loan amount R50 000 plus a once-off initiation fee of R1 207.50 and a monthly admin fee of R69.00, over 72 months.
The total cost of the loan will be R 110 594.54 which is a maximum Annual Percentage Rate (APR) of 30.98%.