Could a personal loan be the answer to debt?

Could a personal loan be the answer to debt?

Published on 24th October, 2019 at 11:36 am

I already have debt I’m struggling to pay off. Would a personal loan provider still consider offering me a loan?

The short answer is yes. “You can still qualify for a loan if you have other debt, provided your credit score is good and you can service the additional credit,” says Piet Van der Walt, head of retail credit at Sanlam.

In the case of a consolidation loan, the goal is to calculate all outstanding debt from your various credit providers, and pay it all off at once using a consolidation loan.

What would make a personal loan a good choice for me?

If you’re already managing your debt fairly well and are looking for a simplified repayment option, then a consolidation loan could be the answer. Debt consolidation means all your debts are consolidated under one larger debt, explains Van der Walt. “This loan often has a lower interest rate than multiple debts.”

It simplifies matters, so you can pay off one amount in affordable monthly instalments, meaning better cash flow and peace of mind that the wolf isn’t at the door.

The idea is to pay off high-interest debt first, and then close those accounts. “You will then be left with only one (and possibly smaller) debt repayment per month to the credit provider who provided you with the consolidation loan,” says Van der Walt.

The downside, however, is that you could wind up paying off the loan over a longer period, so this is something to consider before signing anything. Find out more about how to be savvy with a personal loan here.

I’ve decided to take out a personal loan. Where to from here?

As with any long-term commitment, it’s best to do your research. “Make sure to choose a reputable personal loan provider so you don’t have to worry about over-inflated interest rates, unfavourable terms, or any hidden costs,” cautions Van der Walt. On the other hand, keep your wits about you when it comes to personal loan offers that seem too good to be true – they probably are. “Beware of scams that offer extremely low interest rates such as 4%,” he warns.

Ensure they’re on the right side of the law and offer responsible credit suited to your needs by asking yourself these questions:

  • Is their loan offer easy to understand?
  • Are they subject to the National Credit Act No. 34 of 2005?
  • Did they assess your personal financial situation to ensure that the loan suits your needs and budget? The consultants at Sanlam Personal Loans factor this in before making an offer, and will try to ensure that you are not lent more than you can comfortably afford to pay.

When it comes to doing your homework on the credit provider, don’t be shy to ask these questions.

Before you take the leap, consider this

The primary purpose of the consolidation loan is to make your debt more manageable, bringing financial relief. If the terms don’t allow for this, or don’t fit into your budget for any other reason, hold off until you’ve spoken with a financial planner about your options.

Also consider that any financial decisions you make during the repayment period will be affected by the instalments you pay, warns Van der Walt. Remember: defaulting on loan repayments affects your credit record, which is something you don’t want to jeopardise.

Finally, it may seem like an obvious precaution, but it’s worth taking note: “Try not to enter into any new credit agreements while you are paying off your consolidation loan, or you will just end up in the same financial situation as before,” cautions Van der Walt.

Reality Core, Reality Plus and Reality Health members are rewarded for being responsible with their credit by getting up to 20% cash-back (capped at R20 000) on Sanlam Personal Loans. Read here to find out more.

Want to learn more?

We send out regular emails packed with useful advice, ideas and tips on everything from saving and investing to budgeting and tax. If you're a Sanlam Reality member and not receiving these emails, update your contact details now.

Update Now