JOHANNESBURG - Most people have to take out some sort of loan in their lifetime.
Whether it’s a short-term loan or a 20-year mortgage bond loan, for example, it’s important to be smart and make sure you know what you are getting into before signing on the dotted line.
Mellony Ramalho, executive for sales, branch network at African Bank, says since October is Financial Planning Month it’s important to acknowledge the role that financial advisers play when it comes to being money-savvy.
“If you are considering a loan, one of the first things you should do is speak to a professional. We speak to experts when buying a car or considering a medical procedure, for example, so the same should apply to our money. There are many financial experts at your bank who would be more than willing to talk you through the ins and outs of loans and what would make the most sense for you.
“Speak to a family member or friend whom you trust and who is financially savvy and ask for advice.”
She offers five tips that could be discussion points with your financial adviser and will make you smarter about loans:
Understand the true cost of the loan. When you are shopping around for the right loan make sure that you compare apples with apples. The true cost of a loan takes into account the interest payable, any other charges and when the payments are due. Some banks say that they offer preferential rates to their current account customers but you might still find there are more affordable loans available elsewhere. So, shop around and get all the facts before comparing loans.
Also find out what happens if you miss a payment. Are there penalties, how is it handled, and so on.
Check your credit rating and the small print. Before applying for a loan check your credit rating. This can be done annually free of charge through several bureaux. If your credit rating is not in good shape, you may be offered a more expensive deal.
Also, before you apply for a loan, check the small print to see if you’re eligible. Some lenders have many conditions that have to be met before a loan is granted. By only applying for loans that you are eligible for you will cut out a lot of admin and minimise the chances of a rejected loan application.
Ask about early repayment charges. Did you know that some lenders charge you if you pay back your loan earlier than the time frame agreed upon? It’s a good idea to check how much this charge will be before you apply for a particular loan. If you think there is a good chance you will want to settle your loan early, it may be worth searching for a deal that comes without any early repayment charges.
You may save more by borrowing more. In general, the larger the loan the lower the interest rate. So, there’s a chance that you may actually save money by borrowing slightly more. An extra R500 on your loan, for example, may bump you up into a better interest rate bracket, which may save you money over the repayment period.
Don’t apply for too many loans and consider consolidation. Having a large number of applications on your record makes you look desperate or in financial difficulties, and could jeopardise your chances of being granted a loan. Rather do your homework and apply only to those institutions where you meet the criteria and there is a good chance of your securing the loan.
Also, if you have existing loans you may want to consider a consolidation loan option. Consolidation loans are especially helpful if you want to simplify your credit by settling other debt and turning several loan payments into one cost-effective payment.