What Are Long-Term Loans?
With long-term loans, you can borrow a bigger sum and pay back in small instalments over a long period (usually years). Long-term loans in South Africa are ideal if you need to borrow money for big-ticket items like buying a home, starting a business, or funding higher education. Since the repayment is spread out over a long period, you pay back just a small amount monthly.
Why South Africans Opt for Long-Term Loans?
Long-term loans are a practical option when you need something big but don’t want to overwhelm yourself with sky-high repayments. South Africans often take out long-term loans with low monthly payments to finance major investments and avoid feeling the financial pressure.
How FairBanker Can Help You Get the Long-Term Loan You Need
While the idea of long-term loans sounds appealing, finding a great deal can be a challenge. However, FairBanker makes it easy by compiling loan offers from the best NCR-licensed lenders. Instead of bouncing around from one bank to another, you can find and apply for the best loan deal in one place.
By upholding transparency, we help you avoid pitfalls in fine print, protecting you from deals with hidden fees or unfavorable terms. We place offers with lower interest rates and flexible repayment options from certified lenders at your fingertips.
Request your free loan comparison report today!
Types of Long-Term Loans Available in South Africa
Determining which type of long-term loan is right for you is critical to finding the best loan deal. The most widely available types of long-term loans in South Africa include:
This is a flexible option that you can use for just about anything, from funding a dream vacation to covering medical bills or paying for your education. In many cases, you won’t need collateral or a great credit score. Providers of long-term loans no credit check focus more on your current financial situation when determining your loan eligibility.
Home Loans and Mortgage Loans
Buying a home is one of the biggest financial commitments most people make, and home loans or mortgage loans make this easier. For many South Africans, a home loan is the only way to afford a home without tying down a massive amount of cash up front. Mortgage loans are usually spread out over 20 to 30 years, with fixed or variable interest rates.
If you find yourself drowning in multiple debts, you can roll all your loans into one instead of juggling several payments with varying interest rates.
Debt consolidation loans typically have a long repayment term. Having more time to pay off your debt reduces the pressure on your monthly budget. Also, with debt consolidation, you can negotiate a lower interest for all your loans.
How to Qualify for a Long-Term Loan
Eligibility Requirements
Lenders will assess your eligibility by examining your income, credit score, and employment history. You must have a stable source of income and a decent credit history to prove that you can cover your monthly payments comfortably.
The threshold for income and credit score varies between lenders. But the better you fare in these areas, the better the loan terms you’ll get.
Documents Needed
When applying for long-term personal loans in South Africa, you need to have some important paperwork at hand.
your South African ID,
proof of residence (utility bills or rent agreements),
proof of income (usually recent payslips),
bank statements going back three to six months.
If you’re applying for a home loan, they’ll likely require additional documents like proof of the property’s value or a deed of sale.
Common Reasons for Application Rejection
To increase your chances of getting approved, pay close attention to factors that could get you rejected.
One big factor is a poor credit history. Missed payments or a history of loan defaults are red flags for lenders.
Another issue could be insufficient income. Lenders might reject your application if your salary doesn’t seem like it’ll cover your repayments.
You could also get rejected if your debt-to-income ratio is too high, meaning you already owe too much compared to what you’re bringing in.
Also, if a lender finds your personal details incomplete or inaccurate, he might take that as dishonesty on your part and decide to reject the loan application.
Interest Rates and Repayment Terms for Long-Term Loans
Interests on Long-Term Loans Vs Short-Term Loans: The length of your repayment term has a major impact on the interest rate and overall cost. Long-term loans online usually have lower interests which minimize your monthly payments, but since you're repaying over a longer period, you'll ultimately pay more in interest. On the flip side, with short-term loans, you might pay more monthly, but less in interest over time. Learn more about short-term loans here.
How to Calculate the Total Cost of a Long-Term Loan
To get the full picture of how much your long-term loan will cost, you have to factor in the following:
the principal (the amount you borrowed),
the interest,
any extra fees such as an initiation fee or a maintenance fee.
For example, if you borrow R100,000 at an interest rate of 10% over 10 years, your total cost is R100,000 in principal, plus R53,731 in interest, plus any extra fees. That’s a total repayable amount of more than R153,731.
How to Determine the Right Loan Term Length for You
The length of your loan term has many ramifications for your borrowing experience. It determines the total cost of your loan, how much you pay monthly, and the level of commitment needed for your loan.
Taking a hard look at your finances will help you zero in on the term length that works best for you. Think about your current income, future earning potential, and any other financial obligations.
Lower monthly payments can help you enjoy more flexibility in your budget. But if you can manage higher payments, you can pay off the loan faster, pay less in interest, and free up your future finances.
Evaluating Loan Offers: What to Look Out For
The repayment terms and total loan cost are just a part of the bigger picture of your loan journey. When evaluating offers, also consider the type of interest rate—fixed or variable. A fixed rate means your monthly payments are always predictable, while a variable rate could rise and add unexpected costs.
Also, check for deals with flexible repayment terms. With this option, if you meet a fork down the road, you can easily renegotiate your payment date to avoid defaulting or incurring penalties.
When to Consider a Long-Term Loan vs. a Short-Term Loan
In certain situations, you may be better off with a short-term loan than a long-term loan. Here are quick tips to help you make the right choice.
When to Consider a Long-Term Loan
A long-term loan makes sense when you're financing something big—like a home, a business, or consolidating debt. Your repayment is stretched over years or even decades, so you can pay smaller, more manageable monthly payments. If you’ve got steady income but don’t want to strain your budget, long-term loans can help you cover your expenses with greater ease.
However, the longer the term, the more interest you’ll end up paying in total.
When to Consider a Short-Term Loan
If you need a cash loan quickly but don’t want to be tied down to long-term debt, short-term loans might be a better fit. They’re ideal for covering an emergency expense, making a smaller purchase, or closing a financial gap for a few weeks or months.
You’ll likely end up with higher monthly payments, but the overall cost of short-term loans is typically lower.
Frequently Asked Questions About Long-Term Loans
How do long-term loans affect my credit score?
When you take out a loan, the hard inquiry made by lenders during the application process could lower your credit score. However, as you make consistent, on-time payments, you can improve your score over time. Responsible borrowing and consistent payments can lead to a healthier credit profile.
What is the Maximum Term for a Long-Term Loan?
In South Africa, the maximum term for long-term loans typically ranges from 20 to 30 years, especially for home loans and mortgages. Personal loans might have shorter maximum terms, usually around 5 to 10 years. It all depends on the lender and the amount you wish to borrow and the monthly installments you can afford to pay.
Can I refinance or restructure my long-term loan?
Refinancing or restructuring your long-term loan can be a smart financial move. If you refinance when interest rates drop or your credit score improves, you can secure a lower interest rate and reduce your monthly payments. With restructuring, you can adjust the terms of your existing loan.
However, be mindful of any fees associated with refinancing or restructuring.
Can I borrow more money with a long-term loan?
Long-term loans give you the opportunity to borrow more money compared to short-term loans. Lenders are generally more willing to extend the loan amount with long-term financing, especially for secured loans like mortgages. However, this all depends on your creditworthiness, income, and the lender's policies.
Can I get a long-term loan when I have bad credit?
It’s tougher, but not impossible. Some lenders specialize in helping people secure long-term loans with poor credit in South Africa. But long-term loans for bad credit usually come with higher interest rates to offset some of the risk the lender takes.
The best long-term loan is one that aligns the most with your financial goals and current reality. A good deal can help bring more stability and breathing space to your budget, especially when you’re taking on hefty investments like buying a home, consolidating debt, or expanding your business.
When choosing a long-term loan deal, don’t just think about the present, consider your future self. Understanding your financial capacity today and tomorrow is crucial to choosing a deal that won’t strain your finances in the long run.
Look beyond the numbers when comparing deals. Consider the possible extra costs, flexibility in repayment terms, and the lender’s reputation.
FairBanker is your go-to partner for finding long-term loan deals with convenient terms. We’ll help you choose loan deals that you can handle with full confidence.
Get your free loan comparison report today!