Smart borrowing - make your loan work for you

15/04/2019

Need a loan? Loans can offer financial relief in the case of emergency. However, if used irresponsibly, you could end up in a financial disaster. Similarly, if used responsibly, it could serve as a tool to gain financial wellness. Consider these guidelines before you put in that loan application so that you can make the most of your borrowing.

Before you get a loan

Before applying for a loan, it is a good idea to assess why you need the loan and when comparing the different types of loans, also understand how they work.

Loans make the most sense when used as an investment in your future — like buying a house or paying for school fees. Before you get one, consider these three questions:

  • Why do you need a loan?
  • How will you repay it?
  • What are the interest costs?

Get a loan that you can comfortably repay and that won’t prevent you from doing other important things (like saving for retirement). Figure out how much of your income will go towards your loan repayments and borrow less if you don’t like what you see.

Good debt vs bad debt

When it comes to applying for a personal loan, a home loan or vehicle finance, consider the kind of debt you’re signing up for. This is where the concept of good debt vs bad debt comes into play. Good debt pays for things that provide long-term value and bad debt is usually associated with impulse purchases.

How to make it work for you

  1. Build a good credit profile

One of the best ways to improve your credit score is through a loan. This doesn’t mean your score automatically increases because you got a loan. Rather, it’s a combination of the type of loan you get, as well as how well you pay and manage that loan. Your credit profile is built with good habits. If you practise these 3 habits, your loan can work in your favour to help you improve your creditworthiness.

  • Pay on time, consistently for the full term of your loan
  • Never exceed 30% of your credit limit
  • Avoid having too many loans
  1. Debt relief

If you’re struggling to pay your debts monthly, there’s a loan that can work for you. Getting a consolidation loan can help you combine several loans into one easy-to-manage payment. An African Bank Consolidation Loan can be used as a stepping stone to a better financial future. This will help you to reduce your total cost of credit and also free up cash flow that you can use to either save or pay more towards other debts.

 But, like any loan, this option also requires commitment and discipline because you need to make sure you pay on time to avoid a negative record on your credit report.

Loans can meet the most urgent financial need and sometimes it makes sense to borrow money for things that will improve your life over the long-term. But loans can also cause problems – especially if you’re over indebted. So make sure you understand loans, why you’re getting one and if you can afford it. This will help make sure that you borrow smart and can make your loan work for you.

Up Next

A consolidation loan can help you get out of debt faster.
While consolidating your debt is a good way to move out of the debt trap, it is wise to reflect on your spending habits and avoid falling back into debt.

Publish Date: 26/07/2019
Read more
You can start investing for your retirement right now.
Proper retirement planning puts you in the driving seat from the day you stop working and offers peace of mind that your future is secure.

Publish Date: 29/07/2019
Read more
Get the best interest rate with African Bank
When shopping around for the best interest rate, do some investigation and find out how interest works, to make sure you’re getting the best return for your investment.

Publish Date: 23/07/2019
Read more
Beware of online money lenders who prey on desperate people
Need a loan? make sure you can meet the repayments and that you are dealing with a reputable financial services provider.

Publish Date: 01/08/2019
Read more
Not having money to save could be due to bad spending habits.
You know you should be benefiting from a high interest savings account but it is hard to save money each month.

Publish Date: 02/08/2019
Read more

About African Bank

Our mission is to be a successful Retail Bank offering a wide range of products and services to the consumers of South Africa. The people who work for African Bank represent the diverse population of South Africa; therefore we are a reflection of you, of all South Africans. We seek to provide value - more than our consumers expect of us. We promise to live our purpose 'humanity through banking' in all that we do and we are confident that we can, because 'We are You'.