There are many benefits of personal loan borrowing as long as you use the money wisely. Read on to find how they work and the top ten ways you can benefit from taking out a personal loan.
How do personal loans work?
With personal loans, you can borrow a lump sum and then return the money one instalment at a time. For instance, South African lenders usually offer between R5000 and R250 000, and they allow you to pay it back over 1-5 years, though repayment terms can be longer.
This is a win-win situation because, on the one hand, you get the cash you need to make a purchase or payment. On the other hand, the lender benefits by charging you interest and loan fees. That means you will have to pay back the loan with extra on top, but this is generally acceptable if you get a low rate and use the money for a worthwhile purpose.
10 top benefits of a personal loan
Below, we explain the top ten advantages you can expect when applying for a personal loan.
Can be used for a wide range of purposes
You can use a loan to finance almost anything, including:
Travel and holiday
Buying a car
Buying an iPhone
These are just some of the popular uses of a personal loan. As long as it's a legit purpose, you name it — a personal loan can do it. In addition, you can use a single loan to cover many things.
For instance, you can use your personal loan to pay your bills, repair your car, and buy a new phone all at once. This is different from a secured car loan which can only be used to buy a car.
No need to provide security
Personal loans are generally unsecured loans, meaning you don't have to worry about providing security or collateral. With home loans, you could potentially lose your home if you fail to make your monthly payments. Similarly, taking out a car loan means the lender can seize your vehicle if you default.
However, with unsecured loans, the worst thing that you could lose is a few points off your credit score. But, you will have peace of mind knowing you won't lose your valuable assets. However, remember that unsecured personal loans tend to have stricter credit score requirements to reduce the lender's risk. If your credit score is not high enough, your interest rate will likely be higher than average.
Have lower interest rates than Credit Cards generally
Credit card rates are some of the most expensive on the market. So, if you want a more affordable unsecured loan, it's best to consider a personal loan first. If you have an excellent credit score, one of the biggest advantages of taking out a personal loan is that your interest rate will be much lower.
When it comes to unsecured loans, personal loans also have lower rates than payday loans. However, be sure to check out the loan fees and charges to ensure the total cost of the loan is affordable.
It's possible to save money on interest
Most South African lenders offer flexible repayment terms on their loans. If you choose to, you can pay off your loan faster instead of waiting for the final due date. The earlier you do this, the more interest you can save.
To ensure that early repayments are cost-effective, find out if the lender charges a prepayment fee and how much it is. Closing your account early is only worth it if there are no significant penalty fees that can cancel the interest savings.
Makes things more affordable
This is one of the most appealing advantages of personal loans. In essence, a personal loan is good for your budget because you get a lump sum that you pay back at your own pace. Most lenders allow you to choose your preferred loan term. By choosing a longer repayment period, your monthly payments become more affordable.
Therefore, personal loans are a great option if you're short on funds. You can use the extra cash to finance an expensive purchase that you normally would not be able to afford. Even if you were to save, it would take a long time to meet your goals. This buy-now, pay-later approach helps you avoid financial strain.
Can help you manage debt better
Sometimes, you can use one large personal loan to pay off all the smaller loans you have. This type of personal loan is called a debt consolidation loan, and it helps you manage multiple debts, such as credit cards, student loans, store accounts, and payday loans.
Once you have paid off your existing loans, you're only left with one current personal loan. It's easier to manage because you only have to make one monthly payment, which is easy to keep track of. You can even save money by consolidating debt if you're replacing high-interest debt with a personal loan that has a lower rate.
Can help improve your credit score
Credit bureaus like TransUnion and Equifax look at whether you make timely payments plus other factors when calculating your credit score. Thus, if you make regular loan monthly payments on or before the due date, this can help boost your credit score. When you take out a personal loan, you have the opportunity to do just this.
The trick is to choose an affordable loan amount and monthly payments that are easy to stick to. Over time, you will not only be boosting your credit score and building your credit history, but your credit mix also benefits. Credit mix refers to having different types of loans, which is another factor used when calculating your credit rating.
You can get money quickly
Although turnaround times vary, getting the money on the same day or the next day after approval is possible. This is highly convenient if you're faced with a financial emergency or if you're not willing to use your emergency/rainy day fund. In addition, it's possible to apply for a personal loan online, which speeds up the overall process. Some lenders will transfer the funds within 24 hours after your application is approved.
Flexible borrowing limits
One of the many exciting advantages of a personal loan is the flexible borrowing limits. So, if you need to cover a small purchase, such as a phone, you can take out a small personal loan starting from R2000.
You can also go bigger by borrowing up to R250 000 to finance large purchases if you qualify. These flexible borrowing limits are one of the top reasons a personal loan can be used to meet a wide range of financial needs.
Many South African lenders to choose from
Technology has given South Africans many lending options. Besides traditional banks and financial institutions, you can choose from alternative online lenders. These lenders are determined to simplify borrowing in South Africa with easy applications and fast approvals. For instance, some lenders don't require much paperwork, and you can get approved within minutes of applying.
How to take out a personal loan
Now that you know the advantages of a personal loan, here are the steps to take when you apply for this type of loan.
Go over your budget and calculate how much you can afford to borrow
Fill in and submit the simple application form
Compare the offers you receive to find the right loan
Complete the application process as per the lender's guidelines
Get approved and receive money in your bank account
Use the loan as you wish
Start making payments according to your loan contract
What you need for a personal loan
Proof of income (payslips and bank statements)
Financial and employment details
Any other requirements as specified by your lender
Is a personal loan right for you?
There are many advantages of personal loans. Generally, a personal loan is right for you if:
You want to use it for a worthwhile purpose
It's best to take out a personal loan only for good reasons and not just for the sake of borrowing. Otherwise, you could end up with unaffordable debt.
Even if you're borrowing because it's necessary, be sure to choose an affordable loan with budget-friendly monthly payments. Do the calculations beforehand, so you know what to expect.
It's the best option available
If using your savings or borrowing from family and friends is out of the question, then a personal loan might be a viable solution. You may prefer a personal loan over other types of loans because of its flexibility and generally lower rates.
Fill out a MyLoan application form and start comparing loans today
Given the many benefits of a personal loan, you might be considering applying for one. Get started by filling in our personal loan application form to get offers from multiple lenders. It's one of the easiest and most convenient borrowing methods in South Africa.