Things to consider before applying for a loan

The process of applying for a loan is relatively easy, but you have to ensure that you qualify. Theunis Kruger, head of Unsecured Lending at Standard Bank explained, “When someone applies for a loan, the bank assesses creditworthiness by doing a number of checks. Spending habits and behaviour have a big impact on one’s credit profile, too.”

Banks don’t only look at nett take-home pay, they also consider expenses, employment and one’s ability to repay the loan, taking into account the repayments on any other debt as well as living expenses.

Another important aspect of credit approval is one’s credit profile. There are a number of credit bureaux in South Africa that keep records of one’s credit profile and develop one’s credit score. If someone pays their bills regularly, they will have a good credit profile. Late payments will reflect negatively. Consumers are entitled to one free report from the credit bureaux each year and it is advisable to review the accuracy of your report before you apply for credit.

The final step to securing a loan is proving that you have all the relevant documents to back up your claims, namely:

• Most recent payslip
• Three months’ bank statement if you are not a customer of the bank or financial institution
• Identity document
• Proof of residence

Tips to build a good credit record and keep the payments affordable:

• If you have accounts that are paid but still open, close them. The bank will see them as a line of credit.
• Examine the purpose of the loan carefully. Using a loan for studying is a good reason as it would improve your future earnings potential. Similarly, using a loan to fund home improvements will increase the value of the house.
• Always pay bills on time.
• Make sure your details are up to date at the bureau.
• Protect yourself against identity fraud. Get a copy of your report each year to ensure that someone is not using your details to get credit.

Kruger concluded that banks have to comply with the National Credit Regulator (NCR) rules of responsible lending. If a consumer manages their debt responsibly, they will have access to credit when most needed.