What to Know Before Applying for a Personal Loan

A personal loan is a credit agreement between a lender and a borrower whereby the loan is a lump sum of money that the borrower usually pays back in fixed instalments over a set period of time.

There are usually two main types of personal loans: unsecured or secured.

Unsecured personal loans tend to have higher interest rates while secured loans often have lower rates because of the lower level of risk associated. Secured loans require borrowers to put up some form of collateral, while unsecured loans don’t.

Applying for a personal loan is much easier nowadays. In the past, borrowers generally had to approach a bank for a personal loan, while these days getting access to a personal loan is just a click of a mouse away. This means that borrowers need to be more cautious when applying for personal loans.

There are a number of important factors to consider before applying for a personal loan:

Check for registered credit providers

There are numerous lenders offering their services online. It’s important to keep in mind that there are some unscrupulous lenders. The best way to avoid these lenders is to make sure that you only apply for personal loans from registered lenders. In South Africa, lenders must be registered with the National Credit Regulator (NCR) and they must be compliant with the National Credit Act.

Read the fine print

Ensure that you understand all the fees involved.

Find out about prepayment penalties

Some lenders charge penalty fees for early loan repayment. Flexibility is key, so you’ll want to look for lenders that offer simple solutions.

Banks aren’t the only financial institutions offering personal loans.

Consider shopping around when searching for a personal loan.

Be careful of applying for too many loans at the same time.

This will have a negative effect on your credit record.