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Personal Loans - What You Need to Know

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Most people don’t like admitting that they may have to borrow money from time to time, nor do they like to ask for advice on the subject.

Here we answer some of questions about personal loans which you might have wanted to ask but never did.

What is a personal loan?

It’s money that you borrow from a registered financial services provider that you must pay back, with interest, over an agreed period of time.

There are various reasons. For our customers the most common of these are to extend, upgrade or renovate their homes, pay for studies or buy or repair a car. Loans can also be used to consolidate debt, making it easier to manage.

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

No. Once the loan is approved you can use the money for whatever you want to. We would, however, always recommend that you borrow for a specific purpose and use the money for this. Getting a loan to register for a higher-education course or to pay an unexpected medical bill are examples of how a loan could be used responsibly.

Are there different types of personal loans?

Yes. There are two kinds of personal loans. Secured and unsecured. A secured loan is where you offer something to the same value as the loan such as house or a car as a guarantee you will repay the money. If you don’t pay the loan back then the item you’ve offered as security can be sold to get back any money which is owed.

You do not have to provide security to get an unsecured loan. Your creditworthiness will determine whether you are granted the loan and the interest rate you will pay. Your income, credit score and some other qualifying factors are used to make this decision.

Do you pay the same interest on all personal loans?

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

Secured loans generally have lower interest rates than unsecured loans as the credit provider is taking less risk. If the loan is unsecured then your creditworthiness will influence the interest rate. If you have a good track record of repaying debt and a steady income, you are a lower risk and should get a better interest rate. If not, you’ll pay more.

Interest rates can be fixed or variable. Fixed interest rates stay the same for the entire term of the loan, no matter whether the interest rates go up or down. Fixed rates also mean 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 interest rates rise or fall. As there is an element of risk to you in taking a variable-rate loan, these rates are generally slightly lower than fixed rates.

The term is the time you have to repay 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.

What do you need to apply?

Applying for a personal loan should be fairly quick and straightforward, but there is a strict process that is regulated by the National Credit Act. The Act puts most of the responsibility on the credit provider to carefully check that the applicant can afford the loan. This means following a series of steps including confirming your credit score, income and other debt you may have, the ratio of total debt to income and any other expenses.

Credit providers can access your credit score, as can you, from one of the four credit bureaus.

The basic documents you will need when applying is:

  • 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 you providing copies of recent payslips or three months’ worth of bank statements.

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DirectAxis is a business unit of FirstRand Bank Limited, an Authorised Financial Services and Registered Credit Provider, NCRCP20. Direct Axis SA (Pty) Ltd, Reg no. 1995/006077/07, an authorised Financial Services Provider, FSP7249 & FSP5. 108 De Waal Road, Diep River 7800.

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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 24.75% 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 24.75% 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 103 718.91 which is a maximum Annual Percentage Rate (APR) of 28.01%.