When you apply for a personal loan, the hope is that you will be granted access to funds which will help you meet your pressing financial needs. In exchange for this service, you will be responsible for repaying the loan amount along with added interest and administration fees.
While it’s a well-known fact that two of the main factors affecting the loan amount you are granted are affordability and creditworthiness, these aren’t the only factors taken into account by lenders when calculating personal loan interest rates in South Africa.
Lenders use a range of factors to decide on how much interest to charge you for the loan.
What other factors affect personal loan interest rates in South Africa?
Your level of income
When applying for a personal loan your level of income is an important factor to consider. Generally, the higher your income, the lower the rate of interest financial institutions will charge you. This is mainly because the lender regards you as less of a risk. You are perceived as less likely to default on repayments.
Your credit history
If you want to get the best personal loan interest rates in South Africa, you need to have a solid credit history, because it’s essentially a reflection of your past repayment behaviour. Your credit record shows lenders how well you have managed your debts. If you have a shaky credit record, financial institutions will either reject your application or levy a higher personal loan interest rate.
Type of loan
If you want a secured loan, you must offer collateral, which can typically make the loan cheaper. Your personal loan interest rates will be cheaper as a result. Unsecured loans are riskier for the lender so interest rates will be higher.