A personal loan sounds like a great way to buy today what you can only afford tomorrow. After all, why save until next year for that dishwasher, if you can buy it on special today?

The answer to that question is: ‘Because of the total costs involved in taking a loan.’ For starters, hopefully you already understand that you’ll pay back more than you’re borrowing, no matter what loan you fancy. You’re charged interest on the loan amount. There are also fees and charges that add to the total amount you pay back. So, before you get hold of your banker or apply online, it helps to know what you’re in for.

Do the maths on monthly repayments

Use this personal loans calculator to see what the average repayments would be. Enter how much you need to borrow, and you’ll be shown the range of repayments based on the interest rate charged.

The lower your interest rate, the less you pay back every month. That also means that the total amount you pay back will be less.

It’s worth noting that home loan interest rates are typically lower, although this is over a much longer repayment period.

The higher end of the interest rate scale will be for personal loans. And the highest interest rates are usually applied to borrowers with a lower credit score. You can learn more about understanding your credit score.

Long loan terms can cost you more

If you choose to repay your R10,000 loan over 12 months, your monthly repayment drops to just over R1,000. But the total you will pay over 12 months is closer to R14,000.

It helps to be prepared and informed – look carefully at the numbers before taking out a loan

To take this to an extreme, you could choose to take a loan over 72 months. In this case, you would pay back only about R400 per month. But your R10,000 loan will have cost you more than R20,000 by the time you’ve paid it off over 60 months.

Remember, this is just the interest. There are other costs to a loan...

Loan fees and charges

These are shown in the personal loans calculator details. Typically, you’ll be charged a monthly admin fee and an initiation fee based on the size of your loan.

If you add the monthly admin fee and other charges to a loan over 12 months, that’s an extra R800 you’ll have paid. Over 72 months, in contrast, you’d pay more than R4,000 in fees.

The bottom line is that it helps to be prepared and informed. Look carefully at the numbers before taking out a loan, to make sure you can afford it.