There are a wide array of loans in South Africa. It is important for consumers to choose the right type of loan for their personal needs. For example, if you need finance for a short term, a credit card may be more ideal than a personal loan. If you have a poor credit record, a secured loan may be perfect for you as it is considered a low-risk loan by lenders and it may be easier to qualify for.
According to Debbie Sharwood who is the head of communications of Wonga.com in South Africa, consumers take out loans for different purposes but often do so without understanding or considering the type of loan being offered. If a loan is taken out when it is not needed or is not the right type of loan, consumers can find themselves paying higher interest rates than are necessary. Creating unnecessary debt can place your assets in danger in the event that you default on the loan.
Secured loans: Loan lenders consider this type of loan to be low-risk because there is a collateral attached to the loan. The amount that is loaned is secured against an asset that the borrower owns. If you default, you stand to lose the collateral. Secured loans, therefore, have lower interest rates.
Unsecured loans: With an unsecured loan, no collateral is required to apply. These loans in South Africa are also typically available in smaller amounts over a shorter period. Interest rates are higher than that of secured loans, because the loans are higher risk. These are some of the most popular loans in South Africa.
Home loans: A home loan is a secured loan, specifically aimed at funding the purchase of a house. Lenders normally require a deposit to be paid.
Credit cards: Credit cards are types of loans. You are offered money to spend, which you will have to pay back with interest. Credit cards come with specific limits and interest rates that are higher than those of unsecured loans.
Student loans: These loans are typically used to cover the costs of student fees, textbooks, accommodation and study-related costs. These are popular loans in South Africa, as more people strive to further their education to improve their standards of living.