The ultimate checklist for getting approved for a personal loan in South Africa

The ultimate checklist for getting approved for a personal loan
The Ultimate Checklist for Getting Approved for a Personal Loan in South Africa

Personal loans can help you finance various expenses, such as medical bills, home improvements, or unexpected emergencies. However, getting approved can be a challenging task, especially if you don't have a solid financial background or a good credit score.

It's crucial to have a clear understanding of what lenders are looking for and what steps you need to take to improve your chances of approval. In this article, we'll provide you with the ultimate checklist for getting approved for a personal loan in South Africa.

Step 1: Assess your financial situation

Before applying for a personal loan, it's important to take a closer look at your financial situation and make sure you can afford to repay the loan.

Determine your income and expenses

Calculate your monthly income and expenses. This will give you an idea of how much you can afford to borrow and how much you'll be able to repay each month.

Make a list of all your sources of income, including your salary, bonuses, rental income, or any other income streams. Then, add up all your monthly expenses, including rent, utilities, groceries, transportation, and any other regular expenses.

Check your credit score and credit report

Your credit score and credit report are crucial factors that lenders use to assess your creditworthiness. A good credit score (above 650) and a clean credit report can significantly improve your chances of getting approved for a personal loan.

You can check your credit score and credit report for free from any of the credit bureaus in South Africa (TransUnion, Experian, or Compuscan). Review your credit report carefully for any errors or discrepancies and take steps to correct them.

Calculate your debt-to-income ratio

Your debt-to-income ratio is another important metric that lenders use to determine your ability to repay a loan. To calculate your debt-to-income ratio, divide your total monthly debt payments (including rent, car payments, credit card payments, and any other loans) by your gross monthly income.

Ideally, your debt-to-income ratio should be below 36%. If your ratio is higher than that, you may need to reduce your debt before applying for a personal loan.

Step 2: Shop around for the best loan options

Once you've assessed your financial situation and determined how much you can afford to borrow, it's time to shop around for the best loan options.

Compare interest rates and fees

Different lenders offer different interest rates and fees for personal loans. Make sure you compare the APR (Annual Percentage Rate) and any other fees, such as origination fees or prepayment penalties. Look for lenders that offer the lowest interest rates and fees.

Consider secured vs. unsecured loans

Personal loans can be either secured or unsecured. Secured loans require collateral, such as a car or a house, to secure the loan. Unsecured loans don't require collateral, but they may have higher interest rates. Consider whether you have any assets to use as collateral and whether it's worth the risk.

Check eligibility requirements

Different lenders have different eligibility requirements for personal loans. Some lenders require a minimum credit score, while others may have income requirements. Make sure you meet the lender's eligibility criteria before applying.

Here is a list of typical eligibility requirements for a personal loan in South Africa:

  • Age: You must be at least 18 years old.
  • Residency: You must be a South African citizen or have a valid permanent residency permit.
  • Income: You must have a steady source of income.
  • Credit history: Your credit history will be checked by the lender, and a good credit score is usually required for approval.
  • Employment status: You must be employed full-time or have a regular source of income.
  • Affordability: The lender will check your expenses and income to determine if you can afford to make the loan repayments.
  • Bank account: You must have a valid bank account in your name.
  • Identification: You must provide valid identification, such as a South African ID book or passport.
  • Proof of residence: You must provide proof of your residential address, such as a utility bill or bank statement.

Step 3: Prepare your loan application

Once you've found the right loan option, it's time to prepare your loan application.

Gather required documents

When applying for a personal loan in South Africa, lenders typically require a set of documents to assess your creditworthiness and determine if you qualify for the loan.

These documents usually include your South African ID or passport, proof of income such as your latest payslip or bank statements, proof of residence such as utility bills or a lease agreement, and a completed loan application form.

Depending on the lender and the loan amount, additional documents may be required such as tax returns, proof of employment, and a list of assets and liabilities.

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Choose the right type of personal loan

Personal loans are not one-size-fits-all, and it is important to choose the right type of loan for your specific needs.

There are various types of personal loans available in South Africa, including unsecured loans, secured loans, revolving credit facilities, and consolidation loans. Each type has its own benefits and drawbacks.

Unsecured loans, for example, do not require collateral but tend to have higher interest rates. Secured loans, on the other hand, require collateral but have lower interest rates.

Revolving credit facilities are lines of credit that allow you to borrow money up to a predetermined limit and make payments as you go, while consolidation loans allow you to combine multiple debts into a single loan with a lower interest rate.

When selecting the best type of loan for your needs, consider the amount of money you need to borrow, your repayment ability, and the interest rates and terms offered by different loan providers. It is also important to consider the purpose of the loan, as some types of loans are better suited for certain expenses than others.

What to consider when choosing the right type of loan for your needs

  • Purpose of the loan: Consider why you need the loan and choose a loan type that suits your purpose. For example, if you're buying a car, a car loan may be more suitable than a personal loan.
  • Interest rates: Compare the interest rates offered by different lenders and choose the one with the most competitive rates.
  • Repayment terms: Check the repayment terms offered by the lender and ensure that they are flexible and suitable for your financial situation.
  • Fees and charges: Consider the fees and charges associated with the loan, such as application fees, early repayment fees, and late payment fees.
  • Loan amount: Choose a loan amount that meets your financial needs without putting you under too much financial strain.
  • Credit score: Check your credit score before applying for a loan and choose a lender that is willing to offer you a loan based on your creditworthiness
  • Loan term: Consider the loan term and choose a loan that allows you to repay the loan comfortably over a period that suits you.

Getting approved for a personal loan in South Africa requires careful planning and research. By assessing your financial situation, choosing the right type of loan, and shopping around for the best loan provider, you can increase your chances of getting approved for a loan with favourable terms and conditions.

Remember to read the fine print, negotiate terms, and make timely repayments to build your credit score and improve your chances of getting approved for future loans.

Popular & reliable direct lenders offering Personal Loans

  1. African Bank Personal Loan

    African Bank

    • Loans up to R350,000
    • Term up to 72 months
    • Interest from 15%
  2. Finchoice Personal Loan

    Finchoice

    • Loans up to R40,000
    • Term up to 24 months
    • Interest from 24%
  3. Mpowa Finance Personal Loan

    Mpowa Finance

    • Loans up to R5,000
    • Term up to 12 months
    • Interest from 36%
  4. ABSA Personal Loan

    ABSA

    • Loans up to R350,000
    • Term up to 84 months
    • Interest from 13.75%