Many people who are looking to borrow money short-term, and who for one reason or another can’t get a loan from a bank, have very limited to the options open to them. Most elect to go for pay-day loans.
Pay-day loans are good products, but they are best suited when the duration of the contract is short – ideally only a matter of days, the minimum usually being about four days. This is because the interest rates of payday loans are relatively high. However, when the loan is for days only, the interest rate (typically 0.8% per day) doesn’t amount to a lot of money.
Personal loans vs pay-day loans
Pay-day loans are purposely designed for quick repayment – anywhere up to around 35 days. For some people, this short-term can put their personal finances under a lot of pressure. Having to pay out a large chunk of your salary to clear the loan can leave you short for your regular, everyday living expenses.
That’s why Wonga.ZA has introduced a brand-new loan product – a personal loan (sometimes referred to as an instalment loan). This type of loan has an extended repayment period (up to six months), and in order to make it more affordable (which is, of course, the name of the game) the interest rate is nearly 20% less than that of a pay-day loan.
Before you consider taking out any sort of loan, the first thing you should do is to make sure that you can afford to make the repayment(s) on time without putting your personal finances at risk. This is the first and most crucial step in what is called “responsible borrowing.”
Over-indebtedness in South Africa
According to Matthys Potgieter, a debt expert and spokesperson for a company called Debtsafe, there are over 25-million people here in South Africa who are in debt. Of this 25-million, over 9-million have poor debt records, which means that they are in arrears with their repayments by one, two, or even three months, plus.
Once you get into arrears, it is tough to get out of it again, which is why the new Wonga SA personal loan product is an important addition to the credit scene. One of the principle things governing personal financial well-being is something called “cash flow.”
Understanding cash flow
Cash flow is all about the timing of money – when you expect to receive cash (usually in the form of wages), and when you are expecting to spend that cash, and of course how much. It can be much harder to pay off a short-term pay-day loan than a longer duration personal or instalment loan.
Repaying a pay-day loan means losing what may be a large percentage of your wages in one go, leaving you short for other living expenses.
A personal loan that you pay off in stages means less coming out of your wages at any one point in time, leaving you with more cash left over to get by on. Of course, you will pay more in terms of total interest, but the magic of good cash flow spreads repayments across time making the loan affordable.
Personal loans facilitate better cashflow
Managing your cash flow in this way is an essential part of responsible borrowing, and it’s precisely what this new type of personal loan is here to cater for.