If you must borrow, what’s the right loan for you?

 

As 2020 has proved, sudden emergencies can leave many people simply trying to survive financially, until they can rely on a regular income again.

The Banking Association of South Africa (Basa) received applications from more than 1,2 million individuals for relief by the end April 2020 alone.

In the months since, many more have felt the financial pinch. You are certainly not alone, if you’re seeking temporary financial help.

But what options are available for cash-strapped South Africans?

Overdraft

An overdraft facility is yet another product that can help you manage your monthly cash flow through unexpected shortfalls.

Based on your proven income, an overdraft facility allows you to spend more than is currently in your account. The bank allows this, providing income is paid into the account monthly that covers the overdraft and any interest you’ve accrued.

Depending on your credit record, the bank will set an overdraft limit appropriate to your income.

Personal loan

Personal loans offer quick access to funds and flexible repayment periods. This makes them a good choice for an urgent cash injection you can repay over time – provided the dip in your income is only temporary.

Most banks also offer credit protection insurance on personal loans. These policies cover loans in the event of your death, disability, or not being able to earn an income.

Should any of those misfortunes befall you, you should be able to claim against this policy to cover up to 12 months of your repayments. Read more about why it pays to get personal loan insurance.

Consolidated loan

Consider consolidating all your loans into 1. With a structured repayment plan at a fixed interest rate, you then make a single repayment every month.

While you may pay back more in the long term, this usually reduces the amount you spend each month.

Consolidating your debt can unlock useful savings


You can work out how much a debt consolidation loan could cost you each month, and in total, with this loan consolidation calculator.

Another benefit is that you’re only dealing with a single credit provider. Juggling repayments to multiple providers adds to financial stress, increases the chance of poor decision-making, and costs more in multiple fees.

Consolidating your debt can unlock useful savings. Especially when financial service providers are offering lower interest rates. But a debt consolidation loan also gives you the option of taking out additional funds for personal use.

So long as the amount you apply for, combined with the multiple loans you’re consolidating, is within the maximum loan range and within your affordability, a debt consolidation loan can give you cash boost at the same time.

Whatever borrowing decision you make, be sure to carefully weigh the pros and cons.