Your Guide to Online Loans in South Africa

What are online loans?

Online loans can get done from the comfort of your home, via your computer, tablet, or mobile phone, all while not having to set foot inside a bank! Online loans offer convenience and speed to borrowers who need credit quickly.

You can apply for a loan either online or traditionally through a bank. To know if you're eligible for a loan, you can do a credit check online to see your credit score.

Once you're ready to apply for an online loan, you complete all the requirements online, submit any documents, and wait for approval. Most online loans range between various lending amounts and will depend on the credit provider. Funds get paid into your bank account upon approval, and you've agreed to the terms of the loan.

Differences between online loans and traditional loans

Most traditional credit providers offer their services online to borrowers. There are ways to differentiate between both platforms to help you determine which is the best process for you.

• Using an online lender means you have no in-person contact, and there's no interaction with a customer service representative. This may prove to be a negative if you need questions answered quickly.

• Online loan applications are quick due to streamlined and automated systems. Your details can get verified almost immediately without interacting with people.

• Traditional lenders can provide savings by offering lower interest rates if you have multiple accounts with them, such as bank accounts and car loans. You will get seen as a valuable customer with more than one account.

How do online loans work?

Previously, online loans got done in person at your local bank with plenty of paperwork, but you can apply for a loan online with technology. This process could get time-consuming, but with technology on online automation, loans can get approved within seconds online, assuming you provide all the information during the application process.

“Nowadays, you can apply via a credit provider's mobile app or your computer online while you're sitting on your couch.“

Credit providers generally follow the same steps when a borrower applies on one of their platforms.

Via a banking app:

1. Sign in to your chosen credit provider's app

2. Open an account

3. Follow the instructions

4. If approved, the money will get deposited into your account

Via internet banking or online application:

1. Complete your personal details (ID number, full name, etc.)

2. Follow the instructions

3. If approved, the money will get deposited into your account

Some credit providers will preapprove you online and will call you to complete the application over the phone.

What are the types of loans in the South African market?

Personal Loans

• A long or short repayment period can get selected.

• If you require a small amount, then consider a short-term personal loan.

• Expect higher interest rates.

• If you require a large amount, consider a long-term loan, payable over several years. This will result in smaller instalments and lower interest rates.

Payday loans/Micro loans

• Short-term loans requiring you to pay off the loan within 28 days.

• These loans are costly.

• Higher fees will get charged if you skip any payments.

• A payday loan is an excellent example of bad debt.

Fixed-rate loans

• The interest rate will remain fixed, meaning it won't fluctuate during the duration of the loan.

• Your monthly instalments will remain unchanged, so you know what to expect to pay every month.

Debt consolidation loans

• It consists of combining several of your debts into one loan.

• You will repay the credit provider with monthly payments after they settle your debts for you.

• Interest rates are often better.

Car financing

• The perfect option when buying a car.

• Two interest rates are available – fixed or linked interest rates. Linked interest rates get linked to the current interest rate of the country.

• Linked interest rates can result in monthly instalments fluctuating regularly.

• Payment terms vary between 12 and 72 months.

• Instalments reduce the longer the term of the loan is.

• Balloon payment – a final instalment gets paid as a lump sum at the end of your loan term. Monthly instalments are lower, but costs can be more over the long term.

Business loans

• It has the same similarities as a personal loan; only it's in the name of a business.

• Business loans are perfect for new businesses.

• There are various loans to choose from, so pay attention to interest rates and payment terms.

Home loans

Home loans can get designed around your requirements, with several available options from various home loan credit providers, such as:

• Variable home loans: instalments fluctuate when the interest rate fluctuates.

• Fixed-rate home loans: fixed rates will protect the borrower from increasing interest rates.

• 100% home loan: No deposit is required for this loan, making it very popular amongst first-time home buyers.

• Step-down home loans: Available to those near retirement age, interest rates decline annually or bi-yearly.

• Capped-rate home loan: A difficult home loan to qualify for, you get protection from increasing interest rates with variable home loan rate benefits, with a "cap" rate that's predetermined.

The most common requirements of online loans in South Africa

Credit providers and lenders require the same information, whether it's an online loan application or you're applying traditionally inside a bank. These requirements are necessary for FICA purposes to identify the borrower and get regulated by the Financial Intelligence Centre Act 38 of 2001.

The following are required to apply for an online loan in South Africa:

• You must be 18 years old or older.

• You must be a South African citizen.

• A valid copy of your barcoded South African identity document or Smart Card ID.

• Proof of employment, such as your most recent payslip, letter of employment, or your pension remittance.

• Proof of your banking details – 3 months' bank statements will suffice.

• Most credit providers have their requirements as to what your minimum monthly income must be.

• Most credit providers will require you to not be under debt administration, have applied for or currently going for debt counselling, have a dispute pending with a credit bureau, declared insolvent, or be under any curatorship.

What to know before you apply for an online loan

There are a few things to keep in mind before taking out a loan:

• According to the NCA, credit providers need to register with the National Credit Regulator (NCR) before approving credit to consumers. Credit providers who aren't registered can be scams, and you need to beware of these lenders. To determine if a lender is registered, they must provide you with an NCR registration number.

• It's against the law to make any form of upfront payment to a credit provider when you apply for any loan. It's also against the law to charge borrowers with upfront fees. If you've paid an upfront fee to a credit provider before getting approved for a loan, you must go and report them to the South African Police Service (SAPS).

• It will be challenging to qualify for a loan if you have a low credit score. If a credit provider chooses to approve your loan, you could get stuck with a high interest rate and a low amount loaned. It's beneficial to get your credit score improved before applying for any loan.

What else do I need to consider before applying for an online loan?

Consumers can choose between two types of available loans – secured and unsecured loans.

Secured loans – a loan that gets secured by an asset/assets. The borrower will put up collateral, such as property or a car, to ensure payments can get recovered. This will include recouping through asset repossession. Secured loans provide low-risk, as it ensures the borrower can make on-time payments. Interest rates can reach up to 19.85%.

Unsecured loans – No assurance on the repayments except the borrower's word makes this type of loan a higher risk. Unsecured loans get built on trust between the credit provider and you, resulting in higher interest rates. Interest rates can reach up to 34.85%.

The National Credit Act (NCA) caps interest rates on loans, but interest rates are charged differently between the various loans. Interest rates get determined according to your credit rating.

Banks have the discretion to charge lower interest rates if a borrower has a good credit history. To achieve a good score, you would need to make repayments on time, not have significant debts outstanding, and not be listed negatively.

If you'd like to know your credit score, you can get one free report annually from Transunion, sent directly to your email.

Can I have multiple loans at the same time?

It is possible to have multiple loans simultaneously, but this can influence your credit score negatively. Each time you apply for a loan, your credit profile records every application, also referred to as "foot printing."

Credit providers use foot printing to assess you and will use the information at their discretion to determine whether they will accept or decline your loan application.

Are online loans safe, and how to determine which lender is safe?

Online loans are safe if the credit provider is registered with the National Credit Regulator and can provide you with a registration number. This shows transparency and trustworthiness with the lender.

Be cautious of scammers who guarantee you credit regardless of your income or credit. Look for online reviews and complaints to gain insight into the credibility of the lender. This will also help prevent getting a loan from a credit provider with poor customer service.

Another way to determine if a credit provider is safe is by verifying their physical address. Any credible company will appear on a Google search, along with press releases or news articles.

Do I need insurance on a loan?

It's compulsory to have protection for disability, death, and retrenchment on a personal loan. Insurance cover will pay your outstanding debt if you can't honour your loan repayments in the event of you getting disabled, upon your death, or getting retrenched.

If you get a loan through a regulated lender or credit provider, you can get assured that your premiums will include insurance cover. If you're unsure if your loan is protected, consult with your lender to confirm in writing that insurance gets included.

If you prefer, you can get insurance cover at a provider of your choice, as long as it includes the relevant cover.

I don't want the loan any more, can I change my mind?

The National Credit Act allows for a 5-day cooling-off period to protect consumers from having made rash decisions. This entitles the borrower to cancel the loan within five days after the agreement got concluded.

What happens if I do not pay the loan on time?

As a borrower, you get required to pay your instalments on time. Defaulting on your payments may lead to the following:

1. Default – Not paying your instalments will result in a default. Your credit provider will flag you on their system, and you will begin to receive text messages, phone calls, and emails to get the outstanding monies recovered.

2. Get handed over to collections – If you don't get your instalments up to date, the lender will hand your details over to a collections agency or department, which will act on their behalf.

3. Get listed on credit bureaus – If you're still not getting your behind payments resolved, the lender will notify the credit bureaus to affect your credit record negatively. This step will have any chances of getting credit from another lender limited.

4. Letter of demand – Credit providers will involve their lawyers to issue you with a letter of demand if you have not resolved your payment issues.

5. Court judgment – If nothing is successful thus far, the lender will have the matter escalated and taken to court, all at your own expense. Should you get to this point, do not miss the court appearance! A judgment can reflect on your credit record for five years.

6. Garnishee or sheriff will remove assets – If none of the above works, a garnishee will get applied for by the lender in court, which will get ordered against your salary until the debt gets recovered. Failure to pay will result in a sheriff attaching your employer's assets to recover the debt.