Consumers have the world at their fingertips today and loans are no different – an online loan application can be done in a matter of minutes, from anywhere at any time.
However, as simple and convenient as the process is, a personal loan will only be granted when the applicant has satisfied the bank that they meet all necessary criteria, said Neil Thompson, head of product and customer value proposition at African Bank.
“If you meet the requirements the money could be in your bank account within 24 hours or less. But consumers must be realistic about their personal circumstances and credit history when seeking to borrow money from a bank if they want the application to be successful.”
He said that when applying for a personal loan you do not have to tell the bank what you want to use the money for, unlike borrowing money to finance a car, for example.
Banks always consider risk when borrowing money to customers. There are high risk and low risk scenarios when it comes to loans. This is coupled to an applicant’s credit history, among other factors. A loan that is considered low risk by the lender may have a lower interest rate. A loan that is considered high risk will have a higher interest rate.
If you are unsure what your credit score is when applying for a loan, you can now easily access your free credit report on the African Bank App or internet banking site. You simply need to register on www.africanbank.co.za and then, with one click, you will be able to get your free credit report and check your score regularly.
Once you have established that you do qualify for a loan, you need to check the interest rate.
“The interest rate is the amount charged on top of the principal amount borrowed by the bank to a customer. Before accepting the loan, make sure you are getting the best personal loan interest rates and have read and fully understand all the terms and conditions,” said Thompson.
Banks also recognise that many people “borrow from Peter to pay Paul”, using one credit card to pay off another.
“It is by no means the soundest approach to debt but it is a reality among South African consumers,” Thompson said.
“What people do not realise is that applying for credit at too many financial service providers can tarnish your credit record and lower your credit score. The best approach is to only apply for a loan when you are on a good financial footing and have a good debt and credit history.”
These 5 factors can influence a loan application positively:
1. You pay all your debts on time. This indicates you are managing your debts well and could be in a position to take on more credit. If you are a day or two late each month with paying your rent or store cards the bank could see this as struggling to make ends meet and decline to offer you even more credit to pay off.
2. You have paid off a large chunk of your existing debt. This is more favourable than having a large amount of outstanding debt when you are applying for even more credit. If you have a lot of debt consider downscaling for a period to pay it off before trying to get even more credit through a loan.
3. You can provide all supporting documentation. This can include things like payslips, bank statements and your ID book. Before granting credit to a customer, the bank must verify sources of income and determine what your current expenses are, and proof of these is important to produce.
4. You have no serious judgements or defaults against your name. These can be an instant no-no if you want to borrow money.
5. No creditor has declined you credit before. This indicates a good credit history and is another positive when it comes to a loan application.