It is mind-blowing to think that in South Africa, more people have loans than jobs. According to the World Bank, South Africans are the world’s most eager borrowers. Retrenchments are happening around every corner and the sad reality is that more and more business is being forced to permanently close their doors. The average South African middle-class consumer has 8 loans and is finding themselves in a position where they aren’t even borrowing to finance luxury items, they are borrowing to pay for the essentials, like food and transport.
In a devastating economy, it’s not surprising that the only way South Africans are getting by is with a little bit of help. High-interest rates and fixed term and repayment structures make personal loans so expensive. Depending on your circumstances, a collateral loan might be a better option.
Whether it’s a life-threatening emergency or just life in general, we often find ourselves in situations where we need to urgently borrow money. Has the thought ever crossed your mind of which of your possessions you would happily go without if it meant you would be able to get a loan?
A collateral loan, or more often described as a secured loan, is one that requires the borrower (you) to offer the creditor (financial institution or lender) a fully paid up asset. Assets such as vehicles, trailers, caravans, boats, valuables and collectables and even houses are used as collateral until the loan has been paid in full. Once you have paid up your loan in full, you get your asset back. However, if you are unable to pay back the loan in full, for whatever reason, the lender will hold on to your asset and may even sell it to assist with refunding the money that was initially borrowed.
So, why go for this option as opposed to another personal loan from a bank?
As the lender is able to keep your asset should you not be able to keep to your financial commitment with them, their risk for lending you the money is considerably less, which means that they are also able to offer lower interest rates. This also means that you can borrow more money with a collateral loan than you can with other types of loans and are often given a longer payment term than you would be offered with a traditional loan.
Collateral loans are also easier to obtain as the lender does not perform any background or financial checks. As an applicant, you don’t even have to be permanently employed.
The only real disadvantage of a collateral loan is that if you are unable to make your payment on the loan, you could lose your valuable asset. This could mean the loss of your vehicle or even your home.
If utilized carefully, a collateral loan can be the light at the end of the tunnel that many South Africans so desperately need.