All credit comes at a cost and it's important to understand that the interest and administration fees will add up to significantly more than the amount you initially borrowed. Credit should be taken for necessities or things that will pay for themselves - not the things you simply want. If you can live without the purchase then it's better to put off buying it until you have the cash - otherwise you'll end up paying for more for it.
So, when is a loan a good idea? Have you ever had that week where you need an emergency root canal for your aching tooth, your geyser has burst and your car won’t start? If you don’t have medical aid, home and car insurance or an emergency cash fund then you’re in a bit of a fix. A personal loan can help as long as the loan amount is consistent with the emergency costs. It needs to be affordable too – ensure you can repay those monthly premiums as it is not a good idea to skip any.
Debt Consolidation Loan
Another valid reason to take out a loan in South Africa is to consolidate your debt - that is to bundle all your debt into a single loan. This is not to be confused with debt review or sequestration. With debt consolidation, all your existing credit accounts are paid off and the collective debt is consolidated in a new debt consolidation loan. This is a good strategy if you are struggling to make minimum repayments on various credit accounts (for example, store accounts, credit cards, payday loans) as it allows you to lower your monthly instalments and helps avoid defaulting on payments. The lower monthly instalment is usuall the result of a longer loan term, which ultimately increases the cost of debt. Debt consolidation is an option that is there to assist you in dealing with your debt.