When you have poor credit and multiple debts, a consolidation loan might be the perfect solution to help you manage your finances better. The only problem is, qualifying for a consolidation loan with bad credit South Africa can be a challenge.
It’s a catch-22 because you need a consolidation loan to help improve your low credit, but you also can’t get a consolidation loan because you have low credit. Keep reading to find out how to get out of this dilemma.
HOW DOES A DEBT CONSOLIDATION IMPROVE YOUR CREDIT?
A debt consolidation loan isn’t necessarily for people with poor credit. Instead, it’s designed for borrowers that need to manage multiple loan accounts. When you take out a debt consolidation loan, you use it to pay off different, individual credit accounts, which can include the following:
Credit cards
Student loans
Household bills like utility bills
Medical bills
Once you pay off your loan accounts, it means you now only have to deal with the debt consolidation loan. So, in essence, you have replaced several loans with a single loan that’s easier to manage because you only have to make a single repayment.
A debt consolidation loan can be helpful if you have low credit because it simplifies your finances, and it may be possible to save money on interest. If you get a debt consolidation loan with a lower rate and use it to replace high-interest debt, your monthly payments become more affordable, and you save money in the long run. Affordable repayments also make it possible to get out of debt quicker.
In addition, when your financial situation is simpler, it’s easier to track your due dates and make payments on time, which improves your credit rating.
BENEFITS OF CONSOLIDATION LOANS WITH LOW CREDIT
The repayment process becomes easier with one monthly payment
Monthly payments generally become more affordable
Making monthly payments on time helps improve your credit rating
Possibility of a lower interest rate
It’s a great option for people who want to get out of debt and improve their financial situation
DISADVANTAGES OF CONSOLIDATION LOANS WITH LOW CREDIT
It’s not always easy finding debt consolidation loans with poor credit
Debt consolidation loans for people with poor credit might have high-interest rates and charges
When you consolidate your debt, it might be tempting to take out more loans which worsens your financial situation
TYPES OF DEBT CONSOLIDATION LOANS FOR PEOPLE WITH LOW CREDIT
As stated previously, getting a debt consolidation loan with bad credit South Africain is possible but challenging. Here are a few options to consider when looking to consolidate debt.
DEBT CONSOLIDATION LOAN FROM BAD CREDIT LENDERS
Some South African lenders specialize in granting loans to borrowers with low credit. These lenders are usually alternative lenders instead of traditional financial institutions. That’s because traditional financial institutions like banks and credit unions tend to prefer borrowers with a good credit rating. On the other hand, alternative lenders have a more flexible approach. They will consider other factors like your income, job history, and overall financial situation to decide whether to approve your application.
The biggest advantage of applying with such lenders is that you don’t have to offer security for the loan. However, unsecured personal loans may have higher than average interest rates and fees and smaller loan amounts to offset the lender’s risk. Therefore, it's best to apply for a loan with a registered financial institution to avoid predatory lenders. For instance, borrowing from a loan shark might not be a good idea because of the excessive interest rates.
SECURED PERSONAL LOAN
If you have a car or some other valuable asset, you can use it to secure a loan. This increases your chances of approval because the lender is less worried about whether you’ll pay back the loan. If you default, they can always seize your asset to recover their money. This makes secured loans much riskier because you can lose your asset (usually a car or house) if you don’t make payments as agreed. On the upside, a secured loan usually has a lower interest rate.
HOW TO IMPROVE YOUR CHANCES OF GETTING APPROVED
WORK ON IMPROVING YOUR CREDIT SCORE
South Africans have access to a free credit report each year. If you haven’t already, get your credit report and check for any errors. Common credit report errors include a listing for an outstanding balance that you have already paid off. Fixing such errors can help improve your credit score.
Other ways to improve your credit score include paying down your debt and making payments on time. Keep in mind that improving your credit takes some time, so you may have to wait a while if you want access to lower rates.
REDUCE YOUR DEBT TO INCOME RATIO
The best way to increase your debt to income ratio is by reducing the size of your debt, so you have more disposable income to cover payments for the new loan. You can also increase your income by finding a side hustle.
MINIMIZE LOAN APPLICATIONS
Every time you apply for a loan, the lender will do a hard credit check that lowers your credit score slightly. Therefore, you should avoid too many loan applications in a short timeframe. This will reduce your rating, which is the last thing you want when you already have a low score.
SHOP AROUND
It’s not recommended to accept the first loan offer you get. You need to compare multiple loan offers and look at factors like loan amounts, repayment terms, and fees. The best starting point is filling an application form with MyLoan. You then get multiple offers from our partner lenders and accept the best offer for you.
HOW TO COMPARE AND APPLY FOR THE BEST DEBT CONSOLIDATION LOAN WITH MYLOAN
When you have poor credit, it’s challenging to get the best deals with low interest rates compared to someone with good or excellent credit. It’s also harder shopping for a debt consolidation loan with poor credit because your options are limited. Your best bet is to compare as many deals as possible across the market.
That’s why MyLoan should be your one-stop shop for personal loans in South Africa. We will forward your application to our partner lenders, and you will get offers from the ones willing to offer credit, which saves you a lot of hassle. Besides debt consolidation loans, our partners like Debt Busters and Debt Rescue can also provide you with other finance and debt management solutions.
That means you can still consolidate your debt without applying for a new loan by going under debt review and working with a Debt Counsellor. Begin by filling out our application form, and we will handle the rest, so you can find offers that work best for you.
How much do you need?
Get a Loan up to R350,000
Representative example: Estimated repayments of a loan of r30,000 over 36 months at a maximum interest rate of 29.25% apr would be r1,381 per month including fees. Repayment terms can range from 2 - 72 months. Myloan is an online loan broker and not a lender. Our service is free, and we only work with NCR-licensed lenders in South Africa. Interest rates charged by lenders can start as low as 19.25% apr, including an initiation and service fee determined by the lender. The interest rate offered depends on the applicant's credit score and other factors at the lender's discretion.
