Getting a personal loan is sometimes a dream come true for many people that don’t seem to qualify.
There are several factors that must be considered when one is applying for a loan. So today, I want to discuss the best ways to boost your chances of getting a personal loan.
Let’s dive right in.
5 Best Ways to Improve Your Chances of Getting Approved
When taking a loan makes sense to you, there are several things you can do to boost your chances of qualifying for a personal loan, including but not limited to the following:
- Check credit score: Lenders will typically look at your credit score when deciding whether to approve your loan application regardless of the type of loan you’re trying to get. Aim for a score of at least 650, that’ll help you to qualify for most loans. You can check your credit score for free at any of these top credit bureaus in South Africa.
- Reduce your debt-to-income ratio: Your debt-to-income ratio is the amount of debt you have compared to the income you make. Most lenders prefer a ratio of 40% or lower. To reduce your ratio, you can try to pay down your debts or increase your income.
- Shop around for lenders: There are over 8000 registered lenders in the country, and different lenders have different requirements and may offer different interest rates. Consider shopping around first, to find the lender that is the best fit for you.
- Provide documentation: Be prepared to provide documentation to support your loan application, such as pay stubs, bank statements, and tax returns. This can help show lenders that you are a reliable borrower.
- Get a co-signer: If you have a low credit score or a high debt-to-income ratio, you may want to consider getting a co-signer. A co-signer is someone who agrees to take on the responsibility of repaying the loan if you are unable to do so.
Remember, even if you do qualify for a loan, make sure you can comfortably afford the payments before accepting the loan terms and conditions.
Benefits of Taking a Loan
There are several benefits to taking a loan:
Access to funds: Loans provide access to funds that you may not have otherwise. This can help you finance large purchases, such as a home or a car, or cover unexpected expenses.
Consolidation of debt: If you have multiple debts with different interest rates, taking out a loan to consolidate your debt can simplify your finances and potentially save you money on interest.
Building credit: If you make timely payments on your loan, it can help build your credit score. This can improve your ability to qualify for future loans and may result in lower interest rates.
Flexibility: Loans come in many different forms and can be customized to meet your specific needs. For example, you may be able to choose the loan term and repayment amount that works best for you.
Investment opportunities: Taking out a loan to invest in your education or a business venture can potentially lead to increased income and financial stability in the long run.
It’s important to note that taking out a loan comes with certain risks, such as accruing interest and potentially damaging your credit score if you fail to make payments on time. As such, it’s important to carefully consider your options and make sure you can comfortably afford the payments before accepting a loan.
What’s the average personal loan interest rate?
The average personal loan interest rate can vary depending on several factors, including the borrower’s credit score, income, loan amount, loan term, and the lender’s policies. Generally, personal loan interest rates can range from around 6% to 36% in South Africa.
The average interest rate on a personal loan is 10.8% for borrowers with excellent credit (720 or above), 17.58% for borrowers with good credit (score between 680 and 719), and 24.64% for borrowers with fair credit (score between 580 and 619).
It’s important to shop around and compare interest rates from multiple lenders before accepting a loan to ensure you’re getting the best possible rate for your situation. Additionally, remember that the interest rate is not the only factor to consider when choosing a loan. Other factors, such as fees, loan terms, and repayment options, should also be taken into account.
Personal Loan Interest Calculator
To give you an indication, please use our free loan calculator tool below and begin estimating the possible cost of the loan amount you want to get.
The above debt repayment calculator will determine the total interest that may be charged on the loan, possible installment amount and the final principal debt of the loan.
It’s important to note the above calculations excludes additional fees such as the loan initiation, admin charges and penalty fees. These charges vary between lenders, so always read through the loan agreement before signing.