Personal Loan Interest Rates – Understanding and Comparing Them

personal loan interest rates
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Planning a wedding? Want to finish that renovation on your dream home? Or maybe you need to pay off medical bills? Personal loans are useful in a myriad of different situations, but it is important to know exactly what you’re getting into before you find yourself with unmanageable debt.

Personal loans work just like other types of loans. You borrow a specific amount of money from a lender and repay it in instalments along with interest. Finding the best interest rate for your situation can mean a world of difference to your pocket. Let’s unpack the tools you need to thoroughly understand and compare personal loan interest rates, so you can find the loan that works for you.

Understanding Personal Loan Interest Rates

Your personal loan interest rate can be influenced by a number of factors. Each lender offers unique loan amounts, terms, and interest rates. Beyond this, your personal loan interest rate can be affected by: 

  • Your credit score
  • Your credit history
  • Loan amount
  • Loan term
  • Affordability and income
  • Employment history
  • Other debts

The lender may predetermine a range of interest rates for their personal loan offerings. For example, FNB offers an annual interest rate of between 17% – 28.75% on their personal loans. Meanwhile, Standard Bank offers an annual interest rate of between 7.75% – 25.75% on their personal loans. This is not set in stone but should give you an idea of what to expect when deciding on a lender.

Your credit score and credit history are crucial to securing a lower interest rate from your chosen lender. A credit score is a metric used to indicate your creditworthiness or how much of a credit risk you pose to potential lenders. A higher credit score ensures lenders that you are not a risky client, and you may be offered a lower interest rate. A good credit score is 610 or more, with the maximum credit score being 900.

Adding to this, having a poor credit history can put a damper on your ability to borrow further. If you have previously defaulted on loans, have a history of missing payments or making late payments, you may be viewed as a high-risk client. This means you may be offered unfavourable loan terms such as higher interest rates, lower loan amounts, or even face rejection from traditional personal loans.

Personal loans can be repaid over a period ranging from one month to seven years, with shorter loan terms attracting higher interest rates. Borrowing smaller amounts of money also attracts higher interest rates. The maximum amount you can borrow for a personal loan in South Africa is R350 000. 

It goes without saying that lenders will want reassurance that you will be able to repay your personal loan in time and in full. Proving you can afford the personal loan may entail providing your lender with your recent payslips. You may also be asked to provide bank statements or details of your monthly expenses.

Following your income and affordability factors, your lender may want proof of employment. Having stable, long-term employment is an indicator that you will not be a credit risk, as you will be able to earn enough money to repay your loan. Providing your lender with evidence that you earn a stable income and spend it responsibly can help you negotiate a lower interest rate.

Lastly, your lender will consider any other current debts that you have to pay off. Using what is known as the debt-to-income ratio, your lender will determine if you are in a financial position to take on more debt.

Don’t be Confused by Technical Jargon

Let’s review some terms you should be familiar with before taking out a personal loan:

Initiation Fee- One-time fee that you pay when you agree to enter a credit agreement with a lender

APR – Stands for ‘Annual Percentage Rate’ and represents the cost of borrowing per year as a percentage. This includes your interest rate and all other costs incurred such as service fees. 

Repo rate – The rate at which banks borrow money from the SARB (South African Reserve Bank)

Prime lending rate – The rate at which consumers borrow money from banks. The prime lending rate is directly correlated with the repo rate. 

NCA – Stands for ‘National Credit Act’, which stipulates the regulations lenders need to follow

NCR – Stands for ‘National Credit Regulator’, which is an organisation that promotes responsible lending by supervising the South African credit industry. 

Early Settlement Fees – Refers to a fee payable when settling a large debt before the stipulated loan term end date. Loans under R299 999 should not attract an early settlement fee according to the NCA. 

Debt-To-Income Ratio –  This is calculated as your debts divided by your income per month.

How to Compare Personal Loan Interest Rates

Begin by determining your loan amount and term. Thereafter you can make a list of lenders that you are comfortable borrowing from. This includes your current bank, other major banks, credit unions, and other lenders. Getting reviews from friends and family regarding their experiences with their lenders, the interest rates offered, and other loan terms and conditions can be very helpful.

Once you have decided how much money you want to borrow and a suitable loan term, you can begin eliminating certain lenders who do not offer that loan amount or loan term. For example, if you want to borrow R1 500 and repay it over six months, Standard Bank would not be a suitable lender as their personal loans start from R3 000 and have a minimum term of 12 months. 

After short-listing potential lenders, you can review personal loan interest rate information available either online or by obtaining physical brochures from your local branch. If you are comfortable talking to a consultant at your lender’s branch, you can gain some valuable insight into the personal loan offerings tailored to your needs and financial situation.

When looking at interest rates, you should note the annual interest rate and whether it is subject to change. Lenders generally use an APR (Annual Percentage Rate), which allows you to easily compare rates between competitors. Depending on the lender and loan, your personal loan interest rate should range between 7.75% and 28.75%.

Using Online Calculators to Compare Lenders

Comparing personal loan interest rates can seem like a long and arduous process, but it doesn’t have to be. Many online platforms allow you to quickly and easily compare lenders and interest rates. BetterLoan allows you to compare lenders, find quotes, and learn all about the process so you can make an informed financial decision.

Online calculators generally ask you to input your desired loan amount and loan term to give you an idea of your instalment and interest rate. Some online calculators will also include additional costs and service fees in the instalment.

If you have not contacted a lender to inquire about what personal loans they can offer you, you should keep in mind that the information you find online should be taken as a guideline. Lenders will tailor your personal loan interest rate to your current financial situation.  

There’s no need to even switch tabs to get a quote on a personal loan. Compare lenders, interest rates, and key information on the BetterLoans personal loans page. Get easy access to financial information at the tip of your fingers, whenever, wherever with BetterLoan. 

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*Representative example: Estimated repayments of a loan of R30 000 over 36 months at a maximum interest rate, including fees of 27.5% APR would be R1 232.82 per month. BetterLoans is an online loan broker and not a lender. Our service is free, and we work with NCR-licensed lenders in South Africa. Interest rates charged by lenders can start as low as 20% APR, including an initiation and service fee determined by the lender. The interest rate offered depends on the applicant’s credit score and other factors at the lender’s discretion. Loan amount R500 – R350 000. Repayment terms can range from 3 – 72 months. The minimum APR is 5%, and the maximum APR is 60%.

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