As a country facing a lot of debt, we're doing our best to help South African consumers understand credit health, loans and other forms of finance. In this educational series, we're tackling the loan industry, whether it's cash loans, online loans, payday loans or blacklisted loans!

Before we delve into the loan education, remember the brand new Fincheck Online Loan Application page which will help you easily and safely apply for a loan. It's a better way of making your financial decision!

To recap on our previous posts, you can read each of them by clicking below:

• the basics of a personal loan
• the basics of a pay day loan
• we shared an article from Experian on 7 things lenders look for apart from your credit score

In this post, we're looking at the pros and cons of loans, as well as the things that influence your loan.

Let's get started.

The 3 pros of getting a loan

1. Bigger initial amounts compared to a credit card

When you apply for a personal loan and you have a good credit record, there's a good chance you can get a big capital amount. With a credit card, you qualify for a higher limit as you use and pay back your credit card. This can take some time and can come too late for the emergency where you need some money.

2. No restrictions on how funds are spent

This means you have a huge amount of flexibility on whether you want to spend your money on emergencies or urgent costs in your personal life. This flexibility can obviously be quite a risk if you don't have any self-discipline on how you spend the money and your ability to pay it back.

3. Flexibility in payment structure

Although you can pay back the loan on a flexible schedule, it's important to note that as long as you have an outstanding balance, you'll probably racking up a lot of interest!

What you need to be careful of, the 3 cons of getting a loan

1. Interest rates are high

This means you are in a lot danger if you can't keep up with debt repayments and fall into a perpetual cycle of debt. Make sure you have plans of increasing your income or can afford your repayments before getting into debt.

2. Strict lending requirements

The average credit score in South Africa is well below 560, which means a lot of people don't easily qualify for a loan. This is to protect people from debt and also the economy. There are lenders who will take the risk of lending money to people with a low credit score - but this always comes at a great cost.

3. Consumers with lower credit scores won’t qualify as easily

As mentioned above, if you have a low credit score, you won't easily qualify for a loan. If it's not urgent, you need to seriously consider your reasons for getting a loan as the cost of getting one has longstanding consequences.

What influences the cost of your loan?

Remember, a loan is not money you simply borrow and give back when it suits you. There is a cost to getting a loan and you WILL pay it somehow and somewhere.

The most crucial aspects that are involved in the total cost of your Loan Repayment are:

1. Your loan amount.

Quite obviously, the loan amount you apply for will determine the rest of your costs, like a ripple effect. Make sure you don’t borrow more than you absolutely need to cover your purchase or to cover your unforeseen costs. The amount you qualify for will be determined by your credit score which is influenced by previous loan repayments of course (even in the form of credit cards!).

2. The interest rate.

This is the cost of borrowing money. More specifically, the cost associated with the privilege you are granted to spend in the present, with the ability to pay off your debt in the future. Your interest rate will determine your monthly loan repayment amount. Thankfully, a maximum rate is set in place that lenders can charge you. Make sure your interest rate falls into this category and that you understand the principle of compounding interest. If you don’t, take a few moments and Google it!

3. Your monthly payment amount.

This is determined by your loan amount, interest rate, and the loan repayment period. Drawing up a budget will help you to know how much you will need to set aside from your paycheck every month to make the loan repayment. If you’d like to look at a good example on the influence your choice of repayment period has on your instalment, take a look at this great example from BetterLife Loans.

4. The number of instalments.

Your loan repayment schedule is of utmost importance. Ensure that you are fully aware of every detail to make certain that you can make prompt payments every month. Not defaulting on your instalments is key to keeping a clean record and also influences your future credibility, should you ever need to refinance or consolidate your debts.

5. The timeframe the Personal Loan must be paid back in.

This is the time in which you are able to settle the loan amount as agreed upon by you and the lender. This will also draw upon effective budgeting skills as to not default on your loan repayments. Although these factors may seem simple in determining your total loan cost, always ensure that you double-check every detail when applying for a loan. At Fincheck, we believe in total transparency and we only deal with credible lenders.

How can you get a pay day loan?

Fincheck always aims to help people make better financial decisions. We have spent a lot of time and effort in building an online loan allocation system to help you get a loan that works for you.

If you fill out our easy online loan application form here, you will get loan comparisons fit for your financial profile!

After you have clicked on your preferred loan provider, they will be in touch as soon as they have determined you meet their minimum requirements. If you don't meet their requirements, we will do our best to get you in touch with another trusted partner who could maybe match your loan application needs!

It's always a good idea to check your credit health if you don't qualify for a loan. To help you with this, we offer FREE credit scores which you can learn about here.

P.S Sign up to our newsletter below to receive an email once we release the next post in this latest series. If you have a moment, please also share this post with a friend or relative you think would like to learn more about credit health!

To your better financial future!