Before you decide on a lender and apply for an online loan, it’s good practice to quickly run through the main components of a loan so you know exactly what costs you’ll be facing and how it will affect your monthly cash flow. We look at these 6 main components found on Cobol's website. Cobol offers affordable loans in the South African lending sector.
Let’s take a quick look at the 6 components found on the Cobol Loan Table that will make up your loan by using a simple illustration, we’re going to apply for a loan of R2000:
1 - Loan Term
This is the timeframe that we agree upon with the lender to pay back the debt. Let’s use 1 month to keep it simple.
2 - Initiation Fee
In accordance with the National Credit Act, a lender is allowed to charge you an initiation fee if your loan is approved. In most cases, you can pay this upfront or you can choose to add it to your lump sum. In this case, the initiation fee is R285.
3 - Monthly Fee
A lender is also entitled to charge you a monthly service fee for your loan duration. This is levied once a month on the repayment date. In this case, the service fee is R57.
4 - Interest
This is what you are charged for the privilege of lending. Thus being able to spend in the present, by paying off the debt in the future. Let’s fix the interest rate at 5%.
5 - Monthly Repayment
Your monthly instalment will be determined by a combination of your interest rate on the loan amount, and whether you choose to add the initiation fee to the sum or pay it upfront. Your monthly repayment, in this case, would be calculated as follows with a loan term of 1 month:
(R2000 x 5% = R100 interest) + (R57 service fee) + (R285 Initiation fee) = R2447.17
6 - Total Repayment
In this instance, your total repayment is the same as the monthly repayment due to the fact that we’re paying the loan off in 1 month.
Here at Fincheck, we like to break things down a bit to help you in seeing exactly what you’re paying. If you’d like to view this example in table form with variations in loan term and loan amounts, feel free to visit Cobol here and get an awesome lowdown on loan education.