Your payday may be coming up soon, but your emergency simply cannot wait. During these times, what you really need is short-term relief to wriggle between paychecks until your salary arrives. Taking out a payday loan in South Africa however, requires a careful and knowledgeable approach, so you know what to expect.
Without further ado, let’s dive into all there is to know about payday loans.
What is a Payday loan in South Africa?
Payday loans are cash advances. They cover expenses until your next paycheck arrives.. It gives you quick access to money when you need extra cash to get through to the end of the month. You usually have to pay back payday loans after a week or two. You need to provide a checking or savings account for repayment.
How does payday loans work in South Africa
Though lending terms and conditions might differ depending on the financial provider in question, the following features best describes how this type of loan works;
- They involve borrowing small amounts of money.
- Once your application has been approved, you will receive the money within minutes.
- The loan has to be paid off in a short amount of time.
- High-interest rates and fees.
- A fixed interest rate that is around 5% per month.
- Easy access because of fewer requirements, for example, no credit checks.
What are the common types of Payday loans?
In South Africa, payday loans are quite popular. Many licensed credit providers offer same-day cash loans. They are advertised under different descriptions that explain how they work.
1. Instant payday loan
You may not receive your loan in a few seconds, but the term “instant payday loans” simply means you receive the funds much faster. Comparatively, long-term loans offer larger loan amounts and take a while to process.
2. Same day payday loans
This is a common feature: you apply today and you receive the money that same day.
3. Payday loan for the blacklisted
There is no credit history check needed for approval of this type of loan. However, you should be aware that you will be charged higher interest rates to cover the risk the lender is taking by lending you money. It is strongly recommended for prospective applicants with poor or bad credit ratings to seek help to repair their credit score.
What do I need to get a Payday loan?
One of the reasons payday loans are popular among other loan types is because of its easy accessibility. So long as you have the necessary documents to prove your address, your loan application can be approved. Some of these documents include;
- An active account with a bank or credit union, or a prepaid card account
- A job or other verifiable source of income
- A valid ID proving you are at least 18 years old
- A valid South African ID.
- An employed or self-employed status.
- You need a South African bank account where your salary or income is deposited.
- The income received into your bank account must be regular. Also, it must be above a certain amount. For, example, some lenders require that you earn a minimum of R2,000.
Some financial service providers might request for a few extra documents for scrutinization purposes. the use of extra documents include
- Proof of residence
- Confirmation that you’ll have ongoing employment for the duration of the loan period
The absence of strict requirements and application procedures is one of the unique features of the payday loan. Upon application and approval, the borrower receives the loan amount within 24 hours.
How to apply for a Payday loan?
Even though the application process for a Payday loan is termed swift and easy, the steps involved solely depend on the financial service provider. In general, financial service providers employ two application methods.. These methods are offline application and online application.
The offline application process as the name implies requires the applicant to physically visit the nearest financial provider’s branch. Though this form of application is old and archaic, it’s still efficient in its way.
Online application on the other hand doesn’t require a physical appearance. A user can execute this application from any location. Financial service providers are adopting this method of application due to the advancement in technology. This application process involves either downloading the financial provider’s app, visiting their websites, and following the instructions.
The application process has even been simplified to an extent where you can access the loan by dialing a USSD code. All you have to do is study your desired financial provider and follow their application process.
How do I repay my Payday loan?
They require payday loan benefactors to repay the loan with a single payment by your next payday. Check for the date in the agreement or request for a specific due date, as lenders have varying repayment terms.
Depending on the loan provider, you may have a few repayment options. These options include;
- A postdated check when you apply
- A check on your next payday
- Online through the lender’s website
- Direct debit from your bank account
- Another form of credit
In a situation where you don’t pay the lender as at the due date, they can electronically withdraw the money from your account.
Advantages Of Payday loans
Obtaining a payday loan has the following advantages;
- Since you can borrow the money quickly (normally the same day you apply), you can get help in an emergency.
- If you pay off the loan quickly, you will not have to worry about late fees. In this way, you do not have to carry the debt for very long. Moreover, you pay less in interest.
- You don’t need to own a valuable asset such as a car since they are unsecured.
- The online payday loans application is fast and can be done in the comfort of your own home.
- If you’re an existing customer, the approval process is faster, and you can borrow more (up to R8,000).
Disadvantages of payday loans
It is almost always the case that payday loans come with higher than average interest rates and fees. Taking out a payday loan is an expensive way of solving your financial problems compared to taking out a personal loan.
- Increased monthly expenses that strain your budget.
- If you take more time to pay off the loan, interest charges will be higher, making the loan less affordable and practical.
- Defaulting on the loan (being unable to pay it back) will result in high penalty fees.
- Your chances of getting approved for a loan in the future may be negatively affected.
- A cycle of borrowing money can create a situation in which you are unable to pay your bills, ultimately leaving you with a crippling debt.
As an employee/employer with responsibilities, your monthly/weekly paychecks may not be able to entirely cater for your financial needs. Payday loans are there to act as your financial substitute until your next paycheck.