There are times when borrowing money is unavoidable. You simply don’t have access to the funds you need to expand your business or further your studies, for example, without a helping hand. However, personal loans can lead you into financial trouble if you’re not aware of their possible consequences too.

We’ve broken down the most stressful factors involved with personal loans and how you can take the sweat out of the situations.

Stress factor: you’re worried the interest rate will go up

Interest rates are subject to change when the Reserve Bank of South Africa makes changes to what is called the ‘repo rate’ – this is the interest rate banks pay to borrow money from the Reserve Bank. If you’re concerned that an unplanned increase could put your budget under pressure, discuss fixing the interest rate for a while with your lender.

Stress factor: you’ve got numerous personal loans

It’s not uncommon for people to find themselves in a position where they have a deck of store cards, a student loan, a car loan and other forms of personal loans, all competing for repayment. If you’re struggling to meet your commitments, a  consolidation loan might help – it means taking out a single loan to settle all your other loans in one go.  You may end up paying a lower interest rate and you have the convenience of only paying towards one loan every month instead of trying to keep track of many.

Stress factor: you’re worried you don’t understand the terms

Personal loans can come with a range of fees attached, including a loan-approval fee or service and administration fees. Others have early-exit fees, which means if you repay the loan before the end of the agreement you may be charged an early repayment fee. This usually happens when you take out a loan with a fixed interest rate – by settling your debt earlier, the lender will stand to lose money.

The responsibility is on the lender to make you aware of all fees, costs and consequences of the loan. You must be given a document disclosing details. Read it and ask for clarification if there’s anything you don’t understand before you sign. The lender also has an obligation to make sure that you can afford to repay the loan.

Stress factor: there are emotions involved

This can only mean one thing. You’ve borrowed money from a family member or friend. Stop ducking their calls. Discuss a plan for repayment, put it in writing and stick to it. Be honest about your challenges, but also your commitment to repay the personal loan. Next time borrow from a registered financial services company.

Beat the stress

If you are planning on taking out a personal loan, make it a stress-free one with these tips:

• Make sure you understand the real cost of the loan. Shop around and compare what the lenders are offering in terms of fees, penalties and more.
• Check your credit rating. This is a free service offered by various providers, such as TransUnion or Credit Bureaus. A good credit rating means you should be offered a lower interest rate. Knowledge gives you the power to negotiate.

The information contained in this article is for information purposes only and does not constitute professional advice.

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