Financial literacy is high on everyone’s list in South Africa- but what should we know about personal loans?

‘40% of South African households are unable to afford a R10,000 or more shock expense.’ Meanwhile, short-term ‘loans are increasingly beginning to gain traction’ across South Africa (source).

The figure suggests that educating South Africans in financial literacy is all well and good, but when there isn’t enough money to make ends meet, you need hard cash. The current financial climate is challenging, salaries are stretched, credit cards and banks have lost our trust and costs keep rising.

Inevitably, there will be times when we need financial help, and the figures show just how many of us that is.

Thus part of our financial literacy has to be: how do we use our easier than ever access to credit effectively and safely?

Writing in the, Karin Augustyn, a registered debt counsellor advises: ‘this kind of loan should only be considered in an emergency, ‘when you need access to a relatively short amount of cash at short notice; and only if you are certain that you will be able to repay it within the timeframe’.

  1. Make use of a personal loan calculator. Calculate how much you can honestly afford to pay back. Keep the amount small and the repayment time to within 1-3 months. The good thing about this loan is that it has an end date, so make it sooner rather than later. There are many free personal loan calculators available online.
  2. Clear the amount as quickly as you can. As soon as the money is available make sure that your loan is cleared. You can repay these loans early, so do so if you can.
  3. Save it for emergencies only.There is nothing wrong with having an option in an emergency, but make sure that you do only use it as a last option.
  4. Take a look at the different options before you sign up. There are many different companies with their own terms and conditions, so look around and read the terms and conditions thoroughly before you sign up.
  5. List your financial commitments honestly. Work out what you can truly afford and don’t be over optimistic about how much you can pay back
  6. Get a part-time job for continuous shortfall.If your list shows a significant shortfall, the personal loan won’t help- you would be better off getting a little side-gig to bring in some extra money.

With the current financial climate, there are times when we all need to access some emergency funds. The key is to keep a personal loan to a rare emergency measure, rather than a frequent solution to being short of funds.

Do you agree with our tips, or have you got a better piece of advice? Share it with us- we would love to hear it.