Applying for a personal loan means that the borrower will be obligated to repay the amount with added interest. Personal loan interest rates can be described as the fee that is charged by various lenders in order to provide financial services.
The interest rates charged by the particular lending institution will either depend on the prime interest rate or will be in accordance with the guidelines set by the National Credit Act.
Personal loan interest rates can either be fixed or variable.
Many lenders offer fixed interest rates which mean that repayments made by the consumer remain unaffected by fluctuations in the prime interest rate. In this case, as a consumer you have the benefit of being able to pay a consistent instalment throughout the loan term.
Another important factor to consider when comparing personal loan interest rates is the type of loan that is applied for.
Unsecured personal loans in South Africa generally have higher interest rates. In addition, the better your credit score, the more money you can borrow. Interest rates on these types of loans can be between 2 and 5% a month depending on the loan product and this is the maximum allowed by NCR regulations.
Secured loans (those that require applicants to produce a form of collateral) are often offered at lower interest rates. The risk of lending in this case is offset by the asset against which the loan is secured.
How do South African financial institutions determine personal loan interest rates?
Absa Bank uses the prime interest rate to determine loan repayments. Loan applicants for loans below R25 000 can expect fixed interest rates. Those borrowing in excess of this amount will be charged a variable interest rate.
Old Mutual charges an interest rate that is fixed and determined by your credit score.
Various micro lending institutions charge personal loan interest rates that are within the limits stipulated by the National Credit Regulator.