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We know that we don’t always have the financial situation we want, especially now after recovering from a global pandemic. So often, we need to resort to ways to help us financially, and one of those ways is through borrowing.
Loans are designed to assist us financially, but who is eligible to apply for them? In this text, we will outline some requirements that you need to meet if you are considering applying for a loan, specifically for those who want to apply in South Africa.
About personal loans
Personal loans in South Africa can be used for various purposes, such as paying medical expenses, covering unexpected and unplanned expenses, home renovations, settling existing debts, as well as investing in education.
These loans are typically flexible and can be obtained without collateral, which can pose a risk to the lenders, whether they are banks, credit institutions, or other entities. Therefore, there are certain requirements that need to be met to provide at least some assurance to these institutions.
Requirements for applying for a loan
As mentioned earlier, there need to be requirements in place to provide security for the institutions when applying for loans. Therefore, if you are thinking of applying for one, we will tell you what these requirements are that you need to meet.
Age
The primary factor that will determine whether you can or cannot apply for loans is your age; you will be eligible to apply if you are between 18 and 60 years old.
Employment Status
To make the request, you need to have some form of employment, as this assures institutions that there is a higher likelihood of them receiving loan repayments due to your financial stability. You can be self-employed or work for companies; the key is to have a steady income that provides security for repayment.
Length of Employment
It will be required that you have at least 6 months of work in your current position, as this ensures your stability. Additionally, you will need to have at least 2 years of work experience.
Being a South African Citizen
We know that in today’s globalized world, there are increasingly more foreigners residing in countries that are not their country of origin. However, loans are not always available for foreigners to apply for, and in some cases, proof of South African citizenship is required.
Minimum Income
Once again, as a form of assurance, institutions have requirements such as a minimum income to ensure that they will receive proper repayment, even though this may not necessarily determine the outcome.
Credit Check
They will conduct a credit check where they will examine your entire credit history to determine your credit score. This helps them assess whether you have a positive financial history and a good relationship with the financial market or not.
How are personal loans calculated?
We’ve already discussed the requirements for applying for a loan, but how are the loan amounts determined or even if the loans will be made available? Essentially, it all depends on your income, with the credit analysis that will be performed.
They will have access to your financial history, which will be crucial in making this decision, in addition to requirements such as a fixed salary and length of employment, as mentioned earlier. To determine the exact terms and the maximum amount to be lent, they follow two criteria:
- Fixed Obligation to Income Ratio (FOIR): This method assesses the maximum monthly payment obligation that you will have, whether it’s for outstanding loans or credit card payments.
- Net Monthly Income (NMI): This method determines the maximum amount that can be lent to you based on a multiplicative factor that takes into account your net monthly income.
Both methods have criteria, and if you are requesting a longer term than what is recommended for you or a higher amount than your maximum loan value, your application may be rejected.
