Fashion, funerals, electronic goods, lifestyle upgrades and home improvements are the top five motivating factors for taking out a personal loan in South Africa.
This is according to consumer insights recently collected by African Bank amongst their customer base. “During our application process our customers declare what their needs are when taking out a loan,” said Alfred Ramosedi, African Bank group executive: sales and marketing.
Findings from the same research also show that the average age of people taking out a loan is 37, with the most common age group being mid-20s to mid-30s.
“We believe that this is the age group that has started earning a regular income and who need access to additional money but are not yet at the age where they have other financial products to meet their needs, such as medical aid, vehicle finance, home loan, short-term insurance and so on,” explained Ramosedi.
When it comes to loans in general, he said the customer base appears to know least about the cost of credit and amortisation.
“People’s initial concern is what loan size they can get for what instalment.
“The interest rate and insurance rates do not seem to play a big role in their decision making, probably because the ‘cost of credit’ concept is not clear to them.
“Customers also don’t always understand why banks charge interest to lend out money.
“There are costs involved with running a bank, such as staff salaries and so on,” he said.
When it comes to reasons for loan applications being rejected, the main ones include affordability and bureau information.
“We often see loan applicants trying to get more credit when they already have debt that they are struggling to pay off. We also encounter many applicants who have a bad credit rating with the credit bureaus because of missed payments on loans,” he said.
Ramosedi added it is important to realise that getting a personal loan approved is not always the easiest process and many banks are tightening up their lending rules.
He offers these five useful tips for those considering approaching a bank for a loan:
1. Understand your preferences:
Before heading to your bank, check out loan packages online and see what competitors are offering. You need to be aware of what kind of loan you are looking for, the terms you can reasonably afford, and your goal for paying off the loan as quickly as possible.
2. Ask questions:
When you find the loan package you are most interested in, contact the bank directly to find out upfront what the requirements are for loan eligibility. Banks have different requirements and it will be important to know what they are upfront so you can be prepared.
3. Know your limitations:
If you are taking out a loan, you should already be aware of your credit history and current score. Try and plan ahead and always only apply for the loan based on your financial ability to make repayments you can afford.
4. Create a checklist:
Based on the information from the bank, it’s wise to create a checklist of the appropriate documentation needed for the loan application.
5. Don’t be in a rush:
Again, applying for a loan when you’re in a hurry is never a good idea. The approval of your loan may take time and if it is a personal loan, the lender might want to know how you plan to use the cash, for example, you may need it for home improvements or debt consolidation.
Source for tips: Forbes: Investopedia
