Many people have the wrong idea about debt. Whether it’s a personal loan, a credit card or even store credit, that scary monster called ‘debt’ is meant to make your life better. Yes, it has a cost, but you consider the extra expense worth it because the money can improve your life now.

What about the loans that paid for a dream education, or the people who used their loans to turn a hobby into a profitable sideline? What about the people who hit a rough patch, financially, and managed to get through difficult times with the right loan? Loans and other credit products aren’t only about big dreams, although they can be.

Some loans have been used to extend family homes, providing another source of income, for example. But loans and other credit products are also valuable as tools to smooth out life’s rough spots, with help that’s worth paying a bit more for. Everyone gets hit by cashflow interruptions or unexpected expenses – getting the help you need at times like these is part of sensible financial management.

So, it’s a pity that the debt narrative that seems to get the most attention is the horror story: tales of those who took up too many loans, credit cards and overdrafts that they couldn’t repay, and saddled themselves with serious problems.

A personal loan doesn’t have to be a source of stress and unhappiness. When managed right, a loan is meant to improve your life. Here are some things to consider when you’re weighing up applying for a personal loan:

It has to be affordable

A major fear about debt is that you’ll be sold a loan that you can’t afford. Nedbank prides itself on being a responsible, trusted lender, and we would not approve a loan that you couldn’t afford.

Other good news is that South Africa’s laws around reckless lending have tightened up considerably, so if you approach a credible lender, you will not be enticed into taking on more debt than is reasonable.

Here’s how the loan value you’re offered is calculated: The main measure of affordability is how much money you have available every month.

Credit life insurance was vitally important during the stricter stages of the Covid-19 lockdown

Let’s say you earn R20,000 a month after taxes and deductions. We then look at what your living expenses cost you, and how much you already pay on debt.

If your living expenses are R12,500 and your debt payments every month are R2,500, then you’re left with R5,000 – this is often referred to as your discretionary income. The loan amount you could qualify for is based on this figure.

With a discretionary income of R5,000, repayments of R1,000 a month on your new loan would be quite affordable. But a loan that needed much higher repayments – say, R3,500 per month – would leave you with less room to adapt if your circumstances change. The personal loan repayments calculator is a handy way to work out exactly how much you can borrow on a discretionary income of R5,000 a month – or whatever your discretionary income might be.

You are protected

There are 2 ways that you’re protected when you take out a loan. Firstly, interest on your personal loan is fixed, and you can calculate the total you need to pay every month before you take the loan. If interest rates climb at a later date because government increases the repo rate, the amount you pay every month won’t change.

A more important form of protection is the credit life insurance that is attached to your loan. This is a mandatory form of insurance that is based on the loan amount, and costs a few hundred rand every month.

Credit life insurance will cover your debt repayments for between 6 and 12 months if you are retrenched, or lose the ability to earn an income. This protection was vitally important during the stricter stages of the Covid-19 lockdown – many people were retrenched, or else couldn’t go to work for several months. They had to rely on their credit life insurance to make their payments.

Credit life insurance will also ensure that the outstanding amount on your loan will be settled in the unfortunate event of your death or permanent disability.

But if you’re hit by some other emergency that prevents you from making your monthly payments, it’s always best to speak up. Please don’t hesitate to call our contact centre on 0860 103 582 if you need to make payment arrangements.