Technology has made the world a smaller, smarter and probably more dangerous place than it’s ever been before. Dangerous in a sense that it is possible to get almost anything online today.
From illicit drugs to nappies, you can buy or source almost anything.
Financial institutions weren’t slow in recognising that the internet cut down on a lot of leg work, and so online loans were born.
In the online lending sphere you have a few options: payday loans, personal loans and then peer to peer loans.
Payday loans were probably the reason online lending took off. There is nothing scarier than reaching the last week of the month and realising you don’t have enough money to make it through to payday. These little loans fill that void perfectly.
The ease at which they are able to operate is because they are unsecured, which means you don’t need to have any form of collateral or assets in order to borrow money. All you need is to be over 18, have a valid South African ID, a clean credit record and an active bank account, cellphone, and email.
The most appealing part of these micro loans is that you can borrow money for a few days only. If you know your paycheque arrives in 5 days’ time but you simply cannot survive until then, filling the gap over those few days can be extremely helpful. One thing to look out for when it comes to payday loans is the interest rates. While strictly monitored by the National Credit Act, they are allowed to set quite high interest rates. Be sure you are able to pay back the loan quickly and on time before taking it out.
A personal loan is a more standard form of credit. Offered by banks and other financial institutions it can be used in a variety of ways. Personal loans can be used for anything from home renovations to even consolidating other debt.
Applying online for a personal loan is a lot simpler than it used to be. Effectively you need to fill in the online form, upload the necessary documents and wait for an operator to call you. Not as fast as payday loans but when you’re borrowing up to R50 000 at a time you can understand the need for caution.
A quick look at the Old Mutual website shows they offer three levels of personal loans: up to R2000, up to R50 000 and up to R100 000. The larger option does require you to visit a branch to finalise it. The interest for these loans is determined by your credit record. If you have a healthy, strong credit score you will generally get a better interest rate than someone who is regarded as more of a risk due to their financial history.
Peer to Peer Loans
Somewhat new to the online sphere, peer to peer loans are only just starting to enter the market in South Africa. Local sites like Rainfin and Lendico are some of the first to offer an open peer to peer marketplace where you can get funding for almost anything. The idea behind peer to peer isn’t a new one – borrowing money from a family member or the stokvel system that has been used in rural communities for years are just two examples of how the system can work.
In the United States peer to peer lending has become a billion dollar industry with heavyweights like The Lending Club and Prosper now offer everything from personal loans to retirement plans.
Check out more of our personal finance articles