Unsecured Loans in South Africa
The lack of collateral is a constraint for many loan seekers. An unsecured loan gives you the freedom to take out loans without tying down an asset. Lenders base their decisions on your creditworthiness and income, rather than collateral. A solid credit history can get you there faster, but it’s not necessary to get your loan approved.
Since no collateral is needed, you can get access to funds faster than with secured loans. Plus, you won’t risk losing an asset if things go south.
Of course, all of this comes at a trade-off. Lenders are taking on more risk, and they’ll charge a higher interest to compensate for that. They’ll likely also look for a strong credit history, steady income, and low debt-to-income ratios.
Difference between secured and unsecured loans
With a secured loan, you’ll need to pledge an asset as security, like your home or your car. If you miss payments, the lender has the right to take that asset to recover their loss. In contrast, unsecured loans do not require any form of security. Lenders rely solely on your credit score and income.
While you can almost always enjoy instant approval when your loan is collateralized, unsecured loan providers tend to be choosier and stricter with approvals. They often look for a strong credit history, steady income, and lower debt-to-income ratios.
If all of this sounds acceptable, FairBanker is here to ensure you get the best possible loan deal. Our loan comparison report puts together vital info on the best unsecured loans in South Africa.
Get your free loan comparison report today!
Types of Unsecured Loans Available in South Africa
Unsecured loans come in many forms. The readily available ones in South Africa include:
Personal loans: These are go-to loans that you can use for just about anything, from covering medical bills to funding a vacation, paying school tuition, and making a big purchase. Personal loans come with fixed interest rates and set repayment terms, typically between one to five years.
Debt consolidation loans: If you're juggling multiple debts, you can roll them all into one through debt consolidation. This simplifies your payments, and you can negotiate for a lower interest rate across the board for all your loans.
Short-term loans: When you need quick cash to handle an immediate financial emergency, quick loans can come to the rescue. You can use a short-term loan to cover unexpected expenses, but they’re not ideal for long-term borrowing due to their high costs and short repayment terms.
Revolving credit facilities: This includes credit cards and overdrafts. Essentially, these options give you a credit limit that you can borrow against. You only pay interest on what you use.
These unsecured loan options give you the flexibility to borrow money for various purposes without the risk of losing an asset.
Advantages and Disadvantages of Unsecured Loans
Still wondering if an unsecured loan is best for your situation? Let’s help you weigh the pros and cons.
Quick access to funds: Lenders don’t evaluate your collateral, and this speeds up the application and approval processes.
No collateral is required: If an unexpected financial challenge throws your repayment plans off track, you don’t have to worry about losing an asset that’s worth much more than the amount you owe.
Flexible usage: Secured loans often come with restrictions (e.g., mortgages can only be used for homes). But unsecured personal loans give you the freedom to spend the money how you see fit.
Higher interest rates: Since lenders don’t have collateral to fall back on, they tend to charge more to compensate for the risk. This can make unsecured loans more expensive over time compared to secured loans.
Stricter eligibility criteria: With no assets as security, lenders put more weight on your credit score and financial history. A less than stellar credit score might mean rejection or getting stuck with a higher rate.
Eligibility Criteria and Application Requirements
Looking to get short-term financial relief with an unsecured loan? Lenders differ in their eligibility requirements. Here’s what you’ll likely need to qualify for an unsecured personal loan:
Minimum income requirements
Your income is a huge part of the eligibility criteria. Lenders need proof that you have a steady and reliable income. They set minimum income thresholds, below which you cannot qualify for any loan amount.
Credit score considerations
A good credit score tells lenders you’re responsible with debt. It can also help you secure a lower interest rate. You might still qualify with a low credit score, but you’ll likely face higher rates or more stringent terms.
Age and employment criteria
Most lenders require borrowers to be at least 18 years old. You must also be either employed or self-employed and have a method to demonstrate your income. Some lenders may also require you to have been in your current job for a minimum period (e.g. 3 months).
Documentation Needed for Application
When completing your loan application, you’ll need several documents. These include your ID, proof of residence, and recent payslips or other means of verifying your employment and income verification.
If you can meet these basic requirements, you stand a good chance of securing an online unsecured loan with favorable terms.
How FairBanker and Loan Comparison Can Help You Get the Best Deal
Applying for an unsecured loan in South Africa is straightforward when you know what to expect. That's why, at FairBanker, we offer a free loan comparison report and a direct loan application portal to simplify your loan search process.
Our loan reports let you compare multiple lenders side by side, so you can easily spot differences in interest rates, fees, and repayment terms. Rather than visiting multiple lender websites, you can view everything and sign up for your ideal loan in one place.
Let’s quickly walk through the steps.
Step-by-Step Application Process
1. Fill out the loan request form on FairBanker’s homepage, specifying your personal info and details of your desired loan.
2. Wait a few minutes to get our loan comparison report, then compare the deals based on their interest rate, repayment terms, and other criteria.
3. Apply for a loan that suits you best by clicking the button next to it on the report. Fill out the necessary personal info and submit any required documents.
4. Once you submit your application, you can expect approval within a few minutes or hours. Finalize the deal and wait for the loan to be deposited in your account.
To boost your chances of approval:
Keep a good credit score.
Pay off smaller outstanding debts to reduce your income-to-debt ratio.
Organize your documents ahead of time to avoid delays and provide accurate personal information.
Another pro tip is to opt for loans that match your income and financial profile. Avoid offers that you may likely struggle to repay. Lenders are more likely to approve you if they see you can comfortably repay the loan.
Interest Rates and Loan Terms for Unsecured Loans
Interest rates and loan terms have the biggest impact on your total cost of borrowing. Let’s break down these key factors to help you set your expectations.
Typical interest rates for unsecured loans: Interest rates on unsecured personal loans in South Africa vary between lenders. Generally, you can expect rates to range from 10% to as high as 30%.
Factors influencing the interest rate: Lenders reward a good credit history with lower rates, and that's why it’s important to improve your credit score as much as possible before seeking an unsecured loan. Your income and existing debts also play a role. Lenders will assess whether you can comfortably repay the loan alongside your other financial commitments. Also, larger loans and longer terms may attract higher rates. The lender is risking a higher amount and the risk is spread over a longer period.
Loan repayment periods: The repayment period for unsecured loans can range from a few weeks to months or even years. A longer repayment period lowers your monthly payment, but you’ll likely pay more in interest than shorter terms. Shorter terms may feel more financially intense on a monthly basis but could save you money in the long run.
Total cost of borrowing: To calculate the total cost of borrowing, add the principal amount to the interest payments and any additional fees like initiation or service fees. Always do this before signing a loan agreement. Alternatively, you can use a loan calculator.
The best unsecured loan deal for you strikes a balance between affordability and flexibility, with minimal interest rates and a convenient repayment term. Always compare loans deals to identify the best one.
FAQ about Unsecured Loans
What is the maximum amount I can borrow?
Typically, unsecured loans range from R1,000 to R300,000. Factors like your income, credit score, and current debts will influence how much a lender is willing to offer.
How long does it take to get approved?
The approval process for unsecured loans is generally quick. Once you’ve submitted all the required documents, full approval can take between 24 to 72 hours. The actual disbursement of funds usually happens within a day or two.
Can I get an unsecured loan with a low credit score?
Yes, you can get unsecured loans for bad credit in South Africa. However, lenders may offer smaller loan amounts at higher interest rates or stricter terms to offset the risks. Read more about loans for bad credit here.
Can I get an unsecured loan for my business?
Some lenders offer unsecured loans for small businesses. However, unsecured business loans often have different criteria, including proof of your business’s income and financial health.
Unsecured loans give you fast and flexible access to funds. You don’t need to put down collateral to get funds for personal expenses, debt consolidation, or even small business needs. However, beware of the higher interest rates and stricter eligibility criteria.
When considering an unsecured loan, it’s important to read and understand the terms, assess the eligibility requirements, and compare offers from different lenders to find the most competitive deal for your needs.
FairBanker helps you use unsecured loans to your financial advantage. Request your loan comparison reports today!