IN South Africa, access to credit plays an important role in advancing financial inclusion.

A personal loan is a great product to use to finance home renovations, vehicle related purchases, education and life events such as a wedding or the birth of a baby. Before a loan is issued to an applicant the bank conducts a thorough background check on the borrower. The assessment process looks at, among other things, the applicant’s credit record, income and expenses and level of affordability – Emma Mer, CEO of FNB Personal Loans.

Therefore, when taking out a personal loan, it’s important to take note of the following:

1.Be clear on what you need the loan for and how much you need

Before approaching a bank you should have a clear idea of what you need it for. When you know what you are borrowing for, you are most likely to apply for an amount that matches the expense, and in that way you don’t over extend yourself. It also means that you do not fall into the trap of taking up credit constantly for day to day expenses and cash flow management.

2. Never skip payments

When you skip a payment not only does this have an impact on your credit profile, it puts you under the strain of having to pay more than your monthly instalment to catch up. This could impact your ability to obtain additional credit products in future. You also run the risk of having to pay more in interest and fees to service the debt.

3. Cut unimportant expenses

Know what you are spending your money on, and if you see that you may possibly be spending too much on entertainment, for example, try to cut back and dedicate that money towards paying the loan.

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4.Make sure that you can afford and pay your instalments

The repayment term of the loan significantly influences the monthly repayment amount. For example, if you take out a R5, 000 loan and choose a repayment term of 48 months (4 years) your instalment will be lower when compared to a repayment term of 24 months (2 years) for the same amount. Always ensure that you have some degree of certainty that you will be able to honour the loan amount owed until the end of the term and that your income will be stable.

The above will not only help you continue to gain access to credit but may also benefit in terms of the cost of credit.

When determining the interest that will be charged, one of the things the lender will look at is your credit history. At FNB, your Personal Loan interest rate is personalised and if you exercise the necessary discipline in managing your credit record, you are likely to get a better interest rate 

It’s also important to note that a personal loan is unsecured and the bank does not require any collateral; therefore interest rates are structured differently compared to secured loans such as a Home Loan.

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