How Can I Apply for a Loan?

From month to month, our personal finances seem to follow a pretty standard formula. We go to work, we earn money and we spend that money on the things that we want. Sadly though, our expenses sometimes exceed our earnings and we realise that loans are our only way forward. For most of us, this process is unavoidable, we simply don’t earn enough to buy a car or a house without borrowing some money first… but this fact raises a few very important questions – How do you get a loan? What kind of things are required? And what do you do if you don’t have any collateral? There’s a lot to unpack here so let’s start with the basics. How Can I Apply for a Loan?

There are a lot of different institutions which offer loans at a variety of rates and perhaps the hardest part of getting a loan is finding an affordable one that works for you. That said, there are various services which specialise in streamlining this process which could make your life much easier. Once you’ve made your decision, the steps to follow are almost always the same –

• Contact the Lender – Nowadays, most banks allow you to do almost all the tedious stuff online. Either go to the website of your bank of choice or visit one of their real-world branches. Keep in mind that many fraudulent agencies exist which could scam you out of your savings. With this in mind, it may be wiser to stick to reputable sources when looking for loans.
• Find out if you Qualify – It must be noted that most banks will not provide loans to individuals with bad credit scores or to those with low or unstable incomes. 
• Provide Documentation – Although the requirements may change slightly from bank to bank, you’ll almost always require a South African ID, proof of address and payslips from the past few months to verify your income.
• Figure out the Specifics – Not all loans are the same. You’ll need to figure out the details and ensure that they suit your needs, these include things like your credit line and your payment plan.

What Banks Give Loans Easily?

Because most banks are competing with each other for your business, they all have a similar level of simplicity when applying for a loan. At times, loan procedures at places like Standard Bank, FNB and Nedbank are so alike that they can almost seem indistinguishable from one another. In fact, there are times when the only worthwhile difference between them is the interest rate, which also happens to be one of the most important factors to consider.

While some banks may make the process easier than others, the difference is often negligible and it’s almost always better to put in a little bit of extra effort and get an affordable loan rather than looking for the simplest option and finding yourself in hot water down the line.

How do I Qualify for a Loan?

Qualifying for a loan is normally easier when you intend to borrow a smaller amount. For example, a relatively modest revolving loan may simply require a minimum monthly income and a good credit score, meanwhile, things like home loans will usually involve a bit more paperwork. For the most part, the following factors will determine if you qualify for any given loan –

• Credit Score – Your credit score is determined by things like payment history, employment history, total debt, etc. People with a good credit score will have a much higher chance of receiving a loan as they are viewed as a safer bet by banks and other institutions.
• Income – Lenders will require you to have a certain minimum income to ensure that you can actually pay them back. The precise amount required will differ from bank to bank and will also be influenced by the type of loan you are applying for.
• Debt – Lenders will often calculate your debt-to-income ratio (DTI) before giving you a loan. If too much of your income goes into paying your debts each month, the lender will be hesitant to accept your latest request.
• Collateral – Larger loans normally require some form of collateral on the part of the borrower. When applying for a home or vehicle loan, the collateral is usually the object itself, ie, the property or the vehicle. These are referred to as ‘secured loans’.

What is the Easiest Loan to get Approved for?

It is generally quite easy to get approved for a Personal Loan although, once again, things like your credit score and the amount you wish to borrow will impact the simplicity of the process.

Personal Loans are one of the more common types of loans taken out by people as they are used to cover a wide range of expenses ranging from medical bills to wedding costs.

Can I get a Loan without Collateral?

Yes, you can. Loans that are approved without collateral are known as ‘unsecured loans’ and are quite commonplace in the world of finance. It should be noted, however, that these loans usually include stricter prerequisites and may have an increased risk factor than their secured counterparts. When applying for an unsecured loan, you should try to keep the following in mind –

• You’ll Need a Good Credit Rating – Because of the increased risk to the lender of not having some kind of collateral, you will normally need to ensure that you have an excellent credit rating if you wish to take out an unsecured loan. Lenders will need to be convinced that you will pay back the money that you borrow.
• You’ll Need a Low DTI Ratio – Too much debt on your part will probably scare off most lenders as they won’t be sure that you’ll be able to handle any extra dues.
• You Might Have to Borrow Less – In an attempt to mitigate risks, lenders will often limit unsecured loans. This means that you may have to settle for a smaller loan than you would have liked.
• Interest Rates May be Higher – Interest rates on unsecured loans are almost always higher than those of secured loans. It is extremely important to pay attention to the offered interest rates of lenders and to make sure that you’ll be able to handle the extra cost or you could very quickly find yourself drowning in debt.

In Conclusion – How do I Apply (and Qualify) for a Loan?

When applying for a loan, there are a wide variety of agencies available, each with its own benefits and costs. For the most part, it is advisable to approach reputable groups such as major banks to ensure that all practices are conducted legally and professionally. It is always important to remember that many nefarious groups exist which seek to cheat potential borrowers out of money or to offer loans at extortionary rates. Many institutes also exist which can help streamline this process by comparing multiple groups at once and identifying which ones have the best available deals.

Once you have chosen an adequate lender, simply approach them and see if you qualify for their services. Most lenders have quick and simplistic online resources and most, if not all, of the work may be done virtually. To apply for a loan, you will generally need certain documentation including your South African ID, proof of residency and proof of income. Once this material has been verified, most lenders will consider your credit history and any outstanding debt that you are still paying off to ascertain whether or not you will be likely to pay off the money you borrow. Higher amounts tend to require further proof of creditworthiness and you may even be asked to provide some form of collateral.

While it can be very easy to get a loan, you should be careful that you are not making a mistake before you agree to anything. Certain loans can have extremely high-interest rates which could cause trouble down the road, additionally, spending extra time comparing the different loan offers available to you may make all the difference when it comes to repayment options and interest levels. This is particularly important when receiving unsecured loans that do not have some sort of collateral backing. These loans are famous for having a much higher interest rate – a fact that should factor into the decision-making process of any savvy borrower.

As mentioned, one of the most important factors when looking for loans is your credit rating score. This score is determined by considering multiple factors such as your history of payment, your current debt, your employment history and more. The higher this score is, the more creditworthy you’ll appear to lenders and the more favourable your loans will be. It is for this reason that a credit score should always be of foremost importance when considering your finances as a good credit score can save you a huge amount of money in the long run.

Disclaimer Finance101: All of our posts are for research purposes only. Finance 101 aims to assist its readers with useful information on the laws of our country that can guide you to make financial decisions that will enable you to become more financially independent in the future. Although our posts cite the constitution in many instances, they are intended to assist readers who are looking to expand their knowledge of the law & finance related queries. Should you require specific legal/financial advice we advise you to get in touch with a qualified financial expert.

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