Can you get a personal loan while under debt counselling?

You may find yourself in a financial rut, undergoing debt counselling. While you might consider taking out an additional personal loan – this may not be the answer to your problem. We explore the legalities and whether or not this is an option.

Tip: Click here for a personal loan quote.

What is a personal loan?

“A personal loan is a short term borrowing product for an individual. It is an unsecured debt instrument, which means that one does not need to put up security like a house, insurance policy or other assets to obtain the loan,” says Thuli Magubane, former host of My Money and Me on Kaya FM.  

This type of loan could be taken out for various reasons i.e. to pay for a holiday, an emergency, a wedding, education, funerals or any other immediate needs. In regards to repayment, this can be anything up to 36 months.

How does a personal loan differ from any other type of loan?

Unlike secured debt, such as a mortgage or vehicle finance, a personal loan doesn’t require an asset such as a house or vehicle as collateral or a guarantee. “As a result, there is a higher risk on the loan for the credit provider because there is no collateral; hence the interest will be higher than on a secured loan,” explained Arthur Wasara, marketing assistant at DebtBusters. 

Can you take out a loan when under debt counselling?

Unfortunately, it’s not possible to apply for a personal loan, or any other form of credit, while under debt counselling. Magubane explains, “Debt review is a debt rehabilitation process, which enables an individual to take control of their financial situation and bring them back to financial well-being. As a result, they will not be allowed or able to apply for more credit or use their credit cards, while under debt review.”

The National Credit Act (NCA) introduced the formal debt rehabilitation programme, debt counselling, as an alternative to prevent individuals from being placed under personal administration and having to deal with the long term effects of that. It's aim is to get you debt-free and focuses on the current debt at hand.

Ideal candidates for debt review are those who are unable to keep up with bond payments or credit. Being over-indebted means that you don’t earn the required amount each month to cover your debt repayments and general living expenses. However, it is also required that the individual is employed and earning an income.

Once you undergo debt counselling, your debt obligations will be restricted and new repayment plans are agreed upon with your creditors. This will be done through the process of renegotiating interest rates with creditors to reduce them, as well as by extending the debt repayment terms. A new affordable monthly budget and payment plan is drawn up by a debt counsellor, which will provide the individual with a breather and an ability to manage their finances, Magubane explained.

If you're struggling with your debt repayments, apply for debt counselling here.