Most of us use credit at some point or another – and many forms of credit exist, from credit cards, to personal loans, and even to finance agreements and a home loan.
When considering which form of credit to use, it’s important to not only consider which is best suited to achieving our short-term goals (whether it’s to buy a laptop needed for school, to pay the deposit on a car, or to buy a home) but also which will be the cheapest to repay over time.
By choosing an affordable loan, you can ensure that you not only have cash when you need it, but also that you are able to afford monthly repayments with interest. Different loans all have different requirements – meaning that some can be more affordable than others.
Here, we’ll give you info on the cheapest loan types that you can apply for.
A ‘personal loan’ is money that’s borrowed from a bank, a credit union, or can be applied for as an online loan, where you borrow a smaller sum of money (usually less than R10 000), and usually commit to repaying it in one repayment with interest (called a lump sum).
Unlike many other loans, you can use the money from a personal loan as you like – whether it’s to fund a dream, an emergency expense, or purchase an item which you might not be able to afford in one payment.
Personal loans don’t need “collateral” – that is, an asset or item that you declare as a ‘security’, which a credit provider can claim if you don’t make repayments within a certain period of time.
You can compare online loans to find a personal loan that might suit you.
Like a personal loan, instalment loans can be used to borrow a sum of money that you can use for any purpose. However, instalment loans are different from personal loans in that rather than repaying your loan with interest in one lump sum, instalment loans give you the flexibility to set what is called a ‘repayment period’ – where you make regular repayments over an agreed period of time (such as 3 or 6 months).
While instalment loans can be more expensive than personal loans, they do offer you the opportunity to repay over a period that suits you. It can be useful to apply for an instalment loan when you may not have the money to repay a personal loan in one go.
Using a Home Loan
A home loan or bond is where you apply for a loan to purchase a home. You can apply for a home loan at an interest rate that may be lower than a personal or an instalment loan, but where you put an asset – usually your home – as a ‘security’. This means that a credit provider – such as a bank, takes a claim on your property, and has the right to ‘repossess’ it in the event that you do not make repayments on your loan on time.
Most credit providers might offer home loans at a lower rate, thanks to the fact that they are assured that an asset (the property you are buying) has been offered as security – meaning that even if a loan is not repaid on time, they still have an asset that they can sell to recover their costs of lending money.
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