Let's face it, there are a lot of negative emotions associated with loans and the reasons for getting one. Many South Africans, more often than not, find themselves in a tight situation when it comes to cash flow. To get some extra money, they head over to a financial institution like African Bank or Capitec and take out a personal loan.
We would like to say this out loud: This isn't actually a bad thing! It's when you default on your loan payments that the train starts to derail. So let's look at why a personal loan can actually be a good thing - and also when it turns into terrible debt.
At Fincheck, as a loan comparison provider through our loan calculator tool, we have a lot to do with loans. We have seen how something like a personal loan can be a great tool for every South African in need of one!
A personal loan is a loan that a person will take out to make personal ambitions possible that cannot fit into the immediate cash flow budget. These can be things like household necessities (think new refrigerator!), unexpected expenses, or even a much needed holiday! Whether all those options are smart financial decisions, is entirely a different question. The important thing is, when you decide to apply for a personal loan, you should be committed to paying back the agreed upon amount, in the agreed upon time.
This is extremely important for personal loans because they are also what is called an unsecured loan. Unsecured loans have no security against them (think an asset like a house) and therefore usually have higher interest rates attached to them. Once you start missing these payments, the interest tends to become a mountain more in a shorter amount of time than you can imagine!
If you understand the reasons for it and consequences of it, a personal loan can be a great tool. For example, imagine your geyser at your home breaks down and also damages your house. For many South Africans, this is an unexpected expense that cannot necessarily be allocated to a monthly budget. Or logically speaking, it can, but it will stop someone from being able to pay e.g. their car and petrol. Both of these are vital in going to work to generate more money! In this scenario, a personal loan can assist in covering the immediate cost (not everyone has insurance). For the next 6 months, the personal loan amount can be paid off in a budget friendly way that doesn't destroy a family's cash flow for simple things like food, petrol and vehicle payments.
This is a simple situation that shows you why you should or would need to consider a personal loan. Getting a personal loan doesn't make you a person with terrible debt - not paying it off, does!
If you would like to read more on personal loans, visit Fincheck's personal loan page. If you would like to apply online for a personal loan, this same page will assist you with a simple loan comparison calculator.
Here's to making better financial decisions because you understand the power and responsibility of a personal loan!