Different Types of Personal Loans in South Africa

Posted by Zachary Dean on May 22nd, 2018

There are different types of personal loans in South Africa. Some of them can be obtained without a collateral, while some may require some sort of security to get the loan approved.

Here are the commonly used types of personal loans in South Africa.

1 - Home loan

This type of personal loan is meant to be used for buying or building your own property. You can use it to secure your dream home if you don’t have enough cash to pay for it in full.

The amount you can borrow can be as large as R1 000 000, depending on your credit rating, monthly income, and home loan plan you choose.

Although there are no restrictions on who can own properties in South Africa, stricter policies are enforced on foreigners and non-residents in getting home loans and mortgages. Foreigners are usually allowed to borrow up to a maximum of 50% of the property value, with the remaining half required to be paid as the deposit.

Repayment term for this type of personal loan can last as long as 30 years. Usually, people get the 20-year term.

Interest rates for home loans in SA are quite high, averaging around 10% per annum. People often choose home loans with variable rates than fixed ones because the latter usually presents more unfavourable conditions in longer timeframes.

The best banks that provide home loans are Capitec, Nedbank, Standard Bank, Absa, and FNB.

2 - Vehicle finance

When you’re planning to buy a car but you don’t have enough cash to pay for it in full, you can either use an ordinary personal loan or a vehicle finance to help you with payments.

A basic personal loan can be used to buy a car since there’s no restriction on how you can use it. However, personal loans may have higher interest rates compared to a vehicle finance.

A private vehicle finance is a type of personal loan that’s specifically designed for car purchases. It usually has lower rates and it’s more convenient to obtain than a plain personal loan. You can’t use it for other purposes, though, except for the monthly instalment for your car loan.

Vehicle finance is obviously the better option between the two. Usually, you need to provide a deposit to secure this type of personal loan, though.

Vehicle finance in SA is considered a secured type of personal loan. That’s because the lender has control over the vehicle you’re paying off. The title of the car is in their hands and you’ll only get it once you’ve fully paid the loan.

Repayment terms for vehicle finance in SA usually range from 1 to 5 years.

3 - Payday loans

A payday loan is a type of personal loan designed for quick, emergency purposes. They’re fast and easy to obtain, with most payday companies promising approval of requests within a matter of minutes to a few hours.

Payday loan lenders typically don’t conduct credit checks, meaning you can avail their product even if you’re blacklisted or have a poor credit history.

Payday loans are expected to be repaid within 28 days or on your pay date the following month.

Beware of this type of personal loan, though. Payday loans are notorious for having exorbitant fees added on top of the principal amount. You may be paying an additional 30% to 50% of the original amount you borrowed on the due date. If you borrow R1 000, expect to pay around R1 400 for the loan.

If you’re unable to pay the loan after a month, expect to pay almost double the original amount you loaned on the next due date. This makes payday loans highly risky and even impractical to avail.

4 - Student loan

This type of personal loan is considered by many as a good form of debt because you’re investing in something that will give you better returns in the future. It’s hard to start off with a debt, but if this can get you to a university, it’s not really that bad of a deal.

Student loans have a limit of one year, which means you need to reapply for one every year until you finish school or until you don’t need it anymore. Records of your previous years’ study should be presented when reapplying for a student loan.

Repayment of student loans starts once the debtor completes their studies. Typically, lenders only require debtors to repay only the interest every month while they’re studying.

You can apply for a student loan whether you’re a full-time or part-time student. Working students may be required to repay the loan (interest and capital) while they’re studying.

Student loans are usually repaid 3 to 6 months after the debtor graduates from studying. This allows you to look for a job opportunity that will help you repay the loan received. If, however, you fail to secure a job within this grace period, you have no other option but to ask your parents to cover the repayments for you in the meantime.

The best student loans are offered by established banks like Standard Bank, Absa, and Nedbank. The government also provides student loans through the National Student Financial Aid Scheme (NSFAS). NSFAS is very amicable in providing student loans even to those with a small household income.

5 - Bad credit loans

As its name implies, this is the type of personal loan meant for people with poor credit history.

Banks don’t offer personal loans to those who have high-risk credit profiles. Micro-lenders are typically the institutions that offer bad credit loans, although those who are under debt review, counselling, sequestration, or administration are barred from applying for bad credit loans.

Bad credit loans have ludicrously high interest rates and stricter repayment terms which is why you should only get this type of personal loan as a last resort in emergency situations.

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