With rising fuel, water and electricity costs continuing to strain household budgets, more South Africans are expected to turn to personal loans as a way of staying afloat or funding major expenses.
But experts are warning that while credit can offer short-term relief, it also comes with long-term responsibility in an already pressured economy.
Research by specialist loan provider DirectAxis shows that 28% of South Africans apply for personal loans to cover emergency expenses, while 20% use them for home renovations and 11% for education.
“Whatever the reason, understanding your rights and responsibilities before applying for a loan is crucial,” says Gavyn Letley, product head at DirectAxis.
Letley says many consumers are drawn to personal loans because of how accessible they are.
“The research shows that people chose personal loans over other types of credit because the application is straightforward and the approval process is quick. Nonetheless, it’s important to know what you’re getting yourself into,” he said.
Letley also urged consumers to carefully assess affordability before taking on debt.
“Can you repay the instalments even if interest rates rise? Will you still have enough money to pay essential expenses such as housing, food and transport? Can you afford to add to the debt you are already servicing?” he said.
He further advised borrowers to consider the full cost of credit, including initiation fees, service charges and credit life insurance, not just the headline loan amount.
Consumers are also encouraged to ensure that credit providers are registered with the National Credit Regulator and to be cautious of lenders demanding upfront fees or pressuring applicants to sign agreements without proper documentation.
“While the NCA makes the lender responsible for checking whether the applicant can afford the loan, it relies on the information that is provided. That’s why it’s important to be honest about your income and expenses,” he said.
“If a loan is approved because you’ve under-reported your expenses, it will add to your financial pressures. If you then can’t afford the repayments, it will negatively affect your credit score, which could limit your ability to borrow in future,” he concluded.
Saturday Star