How to Take Out a Loan in South Africa Without Being Crushed By Interest

August 21, 2019

Some people say that money is the root of all evil. This isn’t entirely true, seeing as money itself isn’t the problem. The misuse of it, however, can cause problems in all aspects of your life, from your retirement options to your relationship health.

We can’t argue that money can motivate all sorts of bad behaviour. When managed properly, however, money can help you graduate, retire comfortably, and even gain access to medical care that you would be unable to receive otherwise. The problem is that research by the World Bank has shown that a third of South African adults fail to put aside money for savings, living paycheck to paycheck. It’s obvious that we need to improve our personal finance habits and learn how to secure stable futures for ourselves. The question, then, is how can South Africans manage their money to set themselves up for future success if they don’t have much to work with in the first place? Loans, of course!

Loans often get a bad rap because so many people fail to manage them properly and end up with worse financial troubles than they had before. In fact, some people choose to avoid debt completely, believing that nothing good can come out of it. If you need money to improve your situation in the long-term, the first thing you need to do is change your mindset. Borrowing money can be a great decision— if your motive, amount, and ability to keep up with payments are where they should be, of course.

Are you wondering if taking out a loan is right for you? If so, you’ve come to the right place. Keep reading!

How to take out a loan without being crushed by the weight

Before you take out a loan to improve your future, it’s important that you ensure the choice to borrow is the right one. A tremendous number of South Africans are being crushed under the weight of their personal debt. You don’t want to join the number by making a hasty decision. 

Here’s how you can make an informed decision about whether or not you should be taking out a loan:

1 – Think about what it will finance

To determine whether or not you should be taking out a loan, think about whether it will provide value in the long-term. Taking out a loan for a college education or a home can provide value in the future. Those with college degrees often earn more over their lifetimes. Moreover, they have more job options available to them. A home is an asset that typically appreciates over time and can be a great investment under the right circumstances.

If you are taking out a loan intended to finance your immediate desires, such as an expensive (and unnecessary) car, a bag you just have to have, or a vacation home you can’t afford, it’s best to rethink your desire to take out a loan. These purchases will not be investments for your future. If you really want them, look for another way to finance them, such as a part-time job on the weekends.

2 – Determine whether you can keep up with the monthly payments

When you take out a loan, you have to pay it back. Therefore, it’s important that you think about whether you will have the ability to pay back the loan after you’ve received it. Make sure that you analyse the numbers from all around. It’s easy to lose focus on the final amount you’ll have to pay and think about the seemingly small monthly payments. However, the terms of your loan are crucial. If you can’t keep up with the monthly payments, consider taking a smaller loan or making a larger down payment so that a large portion of your income won’t be cut out every month.

There are several websites and online calculators that can help you determine how much you’ll need to pay on your debt, taking rates into consideration. Remember— if you have the ability, make early payments so that there is a reduced financial strain on you later on and you don’t have to pay as much in interest. That being said, always be conservative. You never know what will happen in the future. If you lose one source of income, you’ll need to have enough to survive.

3 – Look at your credit score

Finally, before you take out a loan, look at your credit score. It’s no secret that the amount you’re able to borrow and the rates that you get often depend on your credit. By being vigilant about your debt, you’ll be able to maintain a high credit score and get approved for future loans. If you don’t have a good credit score yet, consider taking steps to improve it before taking out a large loan so that you get favourable rates. 

Borrowing money isn’t always bad. That being said, before you apply for a large sum, make sure that your intentions are in the right place and your circumstances are too. By thinking about what the loan will finance, determining whether you are able to keep up with the payments, and assessing your credit score, you will be able to make an informed decision about whether you can take out a loan without being crushed by the weight.