If you have bad credit, then you will find it challenging to qualify for traditional bank loans. There are credit products which are especially designed for people like you, but they are quite expensive. There is good news, however. You can still get finance as long as you put in some extra effort. You just need to learn how to avoid the common traps and which path to follow. Find out how to improve your chances of obtaining finance.
Obtain a Loan with Bad Credit – South Africa
Understanding Bad Credit
Things may not be as bad as you think. You have to know exactly where you stand. Request your credit report and go over it carefully. If you notice any errors, you should have them fixed. You may turn out to be more creditworthy than you think.
You should know that having bad credit is a relative term especially when in South Africa. You may not be able to meet the requirements of one lender, but you may qualify for products offered by other lenders. That is why you should always explore all available options.
You just need to do this carefully. It is best if you submit applications to different lenders within a short period of time such as a week or two. In this way, the applications will not have a negative impact on your credit record. You must apply only to registered credit providers that adhere to the rules and regulations of the National Credit Act.
Remember that loan sharks will readily extend a loan to you, but they will charge interest and fees which may be virtually impossible to pay.
When your credit record is very poor, you should consider alternative ways for obtaining finance.
Supportive Credit Programmes
There are special credit programmes run or supported by government agencies and local authorities. These are designed to help people who are in difficult situation to obtain finance for covering emergency expenses, for making repairs or improvements to their homes or for starting a small business for supporting themselves. You should research such programmes and apply in person. Keep in mind that sometimes the loans are offered through traditional lenders such as banks.
The so called peer to peer lending is gaining greater popularity. You can readily obtain a loan from a private person directly. There are special websites for meeting such individual lenders and borrowers. You do not have to meet any specific financial criteria in order to get finance. However, you will still make a commitment to repay the principal plus the cost of borrowing.
Family and Friends
With P2P loans, you will borrow money from people you do not know. You will certainly feel more comfortable with getting a loan from a family member or a friend. You will most likely have higher chances of getting finance as well. If you go for this option, you must do your best to feel the lender feel at ease as well. You should put the loan agreement on paper and preferably have the funds transferred to your bank account instead of getting cash.
Even if your family and friends are not able to lend money directly to you, they may still be able to help you out. If they have stable and secure employment income, they can be your co-signers. When you have a co-signer, you two take out the loan jointly and you share the responsibility for its repayment. In this way, the risk for the lender is lower and you can get a pretty good deal.
If you have bad credit or are blacklisted in South Africa, you will have higher chances of securing a loan if you place collateral. The collateral is a valuable asset which serves as security. If you do not repay the loan, the lender will have the right to repossess the asset. Given this, the risk of you defaulting on the loan will be lower. As a result, the lender will be more willing to extend the loan. You will most certainly secure a lower interest rate as well. This is a helpful solution, but you must ensure that you will be able to repay the loan. You should not underestimate the risk which you will assume.
You have to know exactly how much the loan will cost you and what instalment amounts you will have to pay. If the loan seems quite hard to repay given your current income and monthly expenses, you should look for an alternative solution. You must avoid getting into debt at all costs.