How a personal loan can turn around your finances

If you go in with the right mindset and the right plan for the money you’re borrowing, with a clear plan to pay it off, a personal loan can have a powerful effect on your finances. Here’s a closer look at how it can help you create financial stability and even help you save money.

When is a personal loan a good idea?

Any time you take on debt, you should consider whether it’s right for your situation, will it benefit your finances, and can you afford it?

A personal loan might be a good idea when:

• The interest rate on your credit card is too high
• Your credit limits don’t meet your borrowing needs
• Your borrowing needs are for a short/specific time
• It will help your cash flow and reduce your future reliance on debt

Here are a few scenarios where a personal loan would be worthwhile and potentially save you money:

• Scenario 1: Consolidating debt

A personal loan can help you consolidate your credit card debt into one manageable monthly payment. When you take out a personal loan and use that money to pay off your credit card debt, it’s possible to ditch the higher interest and pay off the debt faster.

For example, if you have 3 credit cards with the following balance and interest rates:
Card A: R10 000 at 20%
Card B: R15 000 at 18%
Card C: R5 000 at 22%

If you only made the minimum payments on each card, it would take you years to pay it off, and you’d end up paying a significant amount more in interest charges. By consolidating your debt with a lower-interest personal loan, you could potentially save in interest charges and fees, manage a single monthly payment and pay off your debt faster.

• Scenario 2: Building wealth

A personal loan can be used to make home improvements and renovations that could increase the value of your house and equity in your home. These enhancements could help you sell a property faster, get more for it or earn a rental income from it.

Furthermore, using a personal loan to pay for an education is an investment into a person’s capacity, knowledge and skills to earn money and grow their wealth. Having an education improves earning potential, which could help them get to their goals faster.

• Scenario 3: Starting a business

If you’re paying high-interest debt and multiple fees over the span of multiple loans, it takes longer to repay the loans, with the repayment amount growing due to the interest charges.

Even if you didn’t manage to secure the best interest rate on a personal loan, having the fixed terms, such as paying off in 36 months instead of 48*, means the total interest will cost you less and the money you save over the life of the loan could be used to start or invest in a business that could be profitable.

That means your money is going towards a purpose and instead of feeling as if your money is going towards something that’s moving you further from your dreams, you can take control of your finances and make choices that will propel you in the right direction.

_{*On loans without fixed terms.}

Think a personal loan is right for you? Do this before you apply for one.

Ensure you’ve got the following useful tools in order before applying for a personal loan as it might help you get a better rate that will benefit you in the long run.

1.  Use our personal loan calculator to see what you can expect and to see whether you could realistically afford it.

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2. Get a free copy of your credit score from a credit bureau and use the Credit Score add-on on the Standard Bank App to get monthly updates on your credit score without affecting your credit record.

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3. Check that there aren’t any errors on your credit score and, if it’s low, consider taking steps to change it, such as paying off some debt.

_{Terms and conditions apply.}

_{Disclaimer: This article is solely intended for information. It does not constitute financial, tax or investment advice or recommendation. Please speak to a financial advisor or registered financial professional before making any financial decision(s).}

_{Standard Bank, its subsidiaries or holding company, or any subsidiary of the holding company and all of its subsidiaries make no warranties or representations (implied or otherwise) as to the accuracy, completeness or fitness for purpose of the information provided in this article or that it is free from errors or omissions.}