If you're in need of a personal loan in South Africa, you may be wondering how to get the lowest interest rate possible. The interest rate you'll be charged can make a big difference in the total amount you'll end up paying back (in several instalments), so it's important to do your research before choosing a lender. In this article, we'll take a look at what's important when getting the lowest interest rate and what kinds of personal loans typically have the lowest interest rates
Factors that Affect Interest Rates
Before we get into the types of personal loans that have the lowest interest rates, it's important to understand the factors that can affect the interest rate you're offered. Some of the main factors include:
- Credit score: Your credit score is a measure of your creditworthiness, and lenders use it to determine the risk of lending to you. Generally, the higher your credit score, the lower the interest rate you'll be offered.
- Loan term: The length of the loan term can also affect the interest rate. In general, shorter loan terms come with lower interest rates, while longer loan terms come with higher interest rates. 1-month loans, which are sometimes called payday loans, typically come with much higher interest rates, though.
- Loan amount: The amount you're borrowing can also affect the interest rate. Generally, larger loan amounts come with lower interest rates, while smaller loan amounts come with higher interest rates.
- Collateral: Some personal loans require collateral, such as a car or home, which can help lower the interest rate.
Types of Personal Loans with Low Interest Rates
- Secured Personal Loans: As mentioned before, secured personal loans require collateral, such as a car or home, which can help lower the interest rate. These loans are less risky for lenders because they have something to repossess if the borrower defaults on the loan. As a result, secured personal loans usually come with lower interest rates than unsecured personal loans.
- Short-term Personal Loans: Short-term personal loans (not to be confused with payday loans) typically have lower interest rates than long-term loans because they have a shorter repayment period. Lenders are taking on less risk by lending money for a shorter period, so they can offer lower interest rates.
- Credit Union Loans: Credit unions are not-for-profit financial institutions that offer lower interest rates than traditional banks. They typically offer personal loans at a lower interest rate than banks because they are owned by their members and are not trying to maximize profits.
- Peer-to-Peer Loans: Peer-to-peer loans are loans that are funded by individual investors instead of a bank or other financial institution. These loans often come with lower interest rates than traditional loans because the peer-to-peer platform doesn't have the overhead costs associated with a brick-and-mortar bank.
- Employer Loans: Some employers offer loans to their employees as a benefit. These loans usually come with very low interest rates or no interest at all because the employer is not trying to make it easy for employees to overcome sudden cash needs.
How to Find the Lowest Interest Personal Loans
Finding the lowest interest personal loans requires a bit of research and effort on your part. Here are some steps you can take to find the best possible rates:
- Check Your Credit Score: As mentioned earlier, your credit score plays a big role in the interest rate you'll be offered. Before applying for a loan, check your credit score and make sure it's accurate. If your score is lower than you'd like, take steps to improve it before applying for a loan.
- Shop Around: Don't just go with the first lender that offers you a loan. Shop around and compare rates from multiple lenders. You can start by checking with your own bank or applying with MyLoan - which will give you an indication of which credit providers are interested in extending a loan.
- Consider Secured Loans: If you have collateral such as a car or home, consider a secured loan. These loans usually come with lower interest rates than unsecured loans.
- Look for Promotions: Lenders sometimes offer promotions to attract new customers, such as a discount on the interest rate or waived fees. Keep an eye out for these promotions and take advantage of them if they make sense for you.
- Read the Fine Print: Make sure you understand all the terms and conditions of the loan before signing on the dotted line. Some loans come with hidden fees or penalties that can end up costing you more in the long run.
By taking these steps and doing your research, you can increase your chances of finding the lowest interest personal loans available to you. Remember to only borrow what you can afford to repay and always make your payments on time to avoid damaging your credit score.