Whether you’re contemplating taking out a loan to purchase your first home, a student funding your own education or wanting to buy that car you’ve always dreamed of, if you’re like many South Africans, you probably don’t have all the cash you need to make the purchase – you need a loan. This will affect your financial future and your lifestyle as you will have to honour your commitment and manage your debt responsibly.
Taking on debt is a big responsibility. You commit to paying back the money within a predetermined timeframe, plus interest.
Before you sign on the dotted line, consider 3 of your worst loan obstacles:
- High interest rates
- High monthly repayments;
- Too many bills to manage.
High Interest Rates
Many loans, especially short-term loans, have very high interest rates as they have a shorter timespan compared to long-term loans. This makes it an immediate loan obstacle. Lenders will use the situation that you do not have credit or any collateral in order to offer the higher interest rate. In general, the fewer the requirements needed to be approved and the faster the availability, the higher the interest rate you will be charged. A good example is that of Pay Day loans, these are very popular in South Africa because of the few requirements needed to be approved. Also note that these are not as good at establishing credit as long-term loans, hence the high interest.
High monthly repayments
Naturally, as a result of the higher interest rate you’re paying, your monthly instalments will be much larger. Always ensure that you can afford the repayments. For instance, a Pay Day loan could take a big chunk off your next pay check, so make sure it doesn’t dig you further into debt.
Too many bills to manage
Although not an immediate loan obstacle, it can quickly become one! Make sure that taking a loan doesn’t negatively affect the status of your other bills, as you will need more time to effectively manage your finances.
It is important to think about these obstacles among others before making the decision to accept a loan. Always shop around for the best interest rates, consider the consequences, and make sure you can afford the monthly instalments. Ask yourself if you really need a loan and weigh your options.
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