Savvy questions to ask when choosing a personal loan provider

A personal loan can help you achieve significant goals, whether studying, renovating your home, installing solar power, or travelling for a family wedding. It’s a discrete and convenient way to access credit, for any use you wish.

Questions you must ask your loan provider 

However, before signing on the dotted line, it’s important to understand, and weigh up, the terms and conditions. We consider the questions you should ask before choosing a personal loan provider, and how this will help you to manage your debt.

Tip: Find out how to consolidate your debt if you’re struggling to pay off what you’ve borrowed.

Choose your lender carefully

It’s essential to research lenders before you sign a loan agreement. At the least, the lender you choose should be registered with the National Creditor Regulator, says Amika Maharaj, head of Business Solutions at FNB Loans.

“This means your credit provider must abide by the regulations of the national credit act, which protects consumers against reckless lending – which means lending more than a consumer can afford to repay,” she says.

Approaching your bank for a loan can be helpful because they already know you, notes Nick Nkosi, head of Personal Loans at Absa Retail & Business Bank.

“It may be easiest as they already have your information on file,” he says. “Even if another institution offers you a lower interest rate, you can try to negotiate with your bank to see if they can improve on it.”

What to ask a loan provider

Maharaj and Nkosi recommend asking the following questions before selecting a loan provider.

Always ensure that your lender is accredited and has a good reputation – a website such as Hellopeter can reveal if they have a solid track record with consumers.

Is a personal loan the best option for your needs?

For example, vehicle finance may be a better option for purchasing a car.

How can you determine affordability?

Your credit provider will determine what you can afford to repay. You can however note the instalment you hope to pay, and see what the loan provider can offer. Affordability is vital to maintain a healthy credit score.

What will the total cost of the credit be?

Knowing the difference between the loan amount and the total amount you will repay, and the interest rates and fees, is important.

Is the interest rate fixed or linked to the prime lending rate?

A related question is whether the lender offers a personalised interest rate based on your credit profile.

Can you pay off the loan sooner, or pay more than the minimum amount each month?

Find out whether, and how, extra payments can be made. If you receive a lump sum, such as a bonus or an inheritance, find out if you can pay this in and reduce the repayment period or instalment. You should also enquire about the borrowing term and whether there are any early settlement fees for paying the loan off sooner.

Is credit insurance mandatory?

If so, find out what the costs and benefits are. Find out what would happen if you lost your job or became permanently incapacitated and could not repay the loan. Also, find out what would happen in the event of your death. 
It’s also worth asking whether it’s possible to choose your own credit insurance provider. This should be possible, provided that the level of cover is adequate.

Is there a contingency plan?

Find out whether you can stop loan payments for a couple of months if you are faced with unexpected expenses, such as a costly funeral. It’s helpful to know if you can make alternative arrangements or temporary plans when “life happens”.

Are there tools to help you manage your loan, or can a consultant assist you?

Ask whether there are self-service/digital options to borrow more money (if needed), retrieve statements, or pay extra into your account. Ask if you can chat with someone if you need to catch up on your repayments, or if you need help with any other issue, without having to visit a branch.

Is there a reward programme you can benefit from?

Are there any rewards you can benefit from, coupled with the personal loan? For example, FNB has eBucks to assist customers with cash flow, says Maharaj.

Can you speak to someone if you have questions?

Ensure you understand the quotation document and whom to contact if you need clarification.

For how long is this loan offer valid?

Finally, find out how long the offer is valid for, so you don’t feel compelled to decide on the spot.

With all of your questions answered, you can make an informed decision with the least possible risk to yourself.

Think carefully before taking out a loan

Personal loans can be hugely beneficial, particularly when you need to cover emergency expenses and don’t have enough savings, or when you want to add value to your future financial position, by, for example, upgrading your qualifications.

However, you shouldn’t take out a personal loan to fund discretionary expenses, says Ayanda Ndimande, head of business development at Sanlam Retail Credit.

“Holidays, entertainment, and clothing have no future value - once the purchase is made, payment continues for months and there is no value to be seen,” she warns. “Personal loans taken out on a month-to-month basis are especially risky.”

Taking out a loan to pay off existing debt is also not a good idea, unless you can secure a lower interest rate, and less fees.

Ndimande says you should consider the risks and benefits before taking out a loan, and speak to a financial adviser who can help you manage your credit responsibly, and build wealth.

A personal loan can help you to achieve some of your life goals. Find out if you qualify, today.