If you are reading this, perhaps it’s because you need a loan for one of two reasons: either you want to consolidate debt accrued over several loans (usually store accounts and credit cards) or you need money for a specific purchase or expense. This distinction is important because the purpose of a loan will determine what features and specifics will best suit your needs.

Take, for example, a loan intended to cover an unexpected expense. In this case, the loan only has to provide credit at what you consider to be an acceptable cost (interest rate and fees). But a loan taken to consolidate debt, on the other hand, will only make sense if it makes your existing debt less costly or allows you to get out of debt. For this reason, debt consolidation loans need to be chosen more carefully. We actually have an article dedicated to this topic, and When to take out a debt consolidation loan, will tell you how to figure out whether a consolidation can help cut the cost of your debt.

In this article, however, we look at the other kind of personal loan, the kind taken to meet an expense. This type of loan can be divided further into two more types:

• Loans used to pay for unexpected expenses, and/or, 
• Loans used to pay for investing in your future (such as education or skills development) 

Here, we look at four points to consider when choosing a personal loan.

Interest rate

The interest rate is probably the first thing you’re going to look at when choosing a loan. This figure, combined with the length of the repayment period will determine how much interest you pay over the lifetime of a loan. So, the question is, how do you ensure the lowest possible interest rate?

It all comes down to your choice of lender and your credit behaviour. The best way to get a low interest rate is to improve your credit score. 

Fees and charges

Every Personal loan comes with a monthly administration fee, but not all fees are the same and some loans may include hidden costs. Before signing, be sure to ask your lender about any additional or hidden fees. 

Repayment term

A longer repayment term can make your monthly instalments more manageable, which can be helpful when you’re working within a tight budget. However, it’s important to keep in mind that spreading your loan over a longer period means you’ll pay more in interest and fees over time. The key is to find a repayment term that balances affordability with overall cost. You can use our simple loan repayment calculator to estimate how different loan terms and amounts will affect your monthly instalments and the total cost of your loan.

Consequences for missing a payment

It’s also important to consider the consequences of missing a payment. Unexpected situations can arise that make it difficult to meet your obligations. For example, if a retrenchment impacts your income, you should be able to approach your lender and arrange to have your loan restructured. If you anticipate missing a payment, don’t wait for the debit order to bounce. Call the help centre or go into the branch to talk to a consultant and explore possible solutions.