MyMoney Online

That little loan can dig a huge hole for you….

Unsecured lending seems to be a quick and easy way out of a financial crisis but its probably a spade which digs a bigger hole for you. The old saying, “If you find yourself in a hole, the first thing you should do is stop digging”, is so applicable to debt.

My wife recently showed me an SMS she got on her phone offering her a a personal loan without any credit referencing at an interest rate of 4,1%. This must be so enticing to someone who is desperate for cash. It offers a quick fix yet is one of the most expensive costs of lending around.

Interest rates are on the rise

The recent rate hike of another 25 basis points brings the repo rate ( the rate that the is charged to the banks by the reserve bank) to 7% and the prime lending rate (the rate which the bank lends money to us) to 10,5%. This simply means that the cost of debt is rising further digging your hole even deeper.

The cost of debt is more than you think

Now if you get offered a loan at 4,1% then there must be something more to it as it sounds too good to be true given the new rate of 10.5%.

Visiting one of many sites offering unsecured lending for blacklisted applicants I found a calculator which works out the interest over a period of unto 36 months. Taking a R10 000 loan over 24 months costs you R769 per month which means you pay R8 456 in interest. Over 36 months you pay R12 248 for a R10 000 loan! So you pay around 40% per annum.

Treat the cause

The main problem is that in most cases taking up this kind of loan treats the symptom and not the cause. Sooner or later you will have deal with getting out of debt instead of further into it. At the outrageous cost of unsecured loans your chances of getting rid of your debt make it so much more difficult.

The reality is that if you are borrowing to make ends meet you are living above your means. You will be better off finding ways to live under your means. Drastic times call for drastic measures. Even if it means scaling down on the house and or car. Borrowing at rates of 40% certainly won’t improve things.

Listen to the audio below for more information

Read more from Paul Roelofse at www.investforlife.co.za


Recommended

by NEWSROOM AI
Read More
You’re almost certainly – no matter what you believe - crap at investing

You’re almost certainly – no matter what you believe - crap at investing

Data shows that almost everyone sucks at investing, says Warren Ingram. Here's how to avoid shooting yourself in the foot.

3 best JSE shares to buy this week (by 27Four)

3 best JSE shares to buy this week (by 27Four)

The Money Show’s Bruce Whitfield asks Nadir Thokan (Investment Analyst at 27Four) what he’s buying right now.

3 best shares to buy right now while the JSE is recovering (by FNB Securities)

3 best shares to buy right now while the JSE is recovering (by FNB Securities)

Chantal Marx (Head of Research at FNB Securities) shares her stock picks of the week on Bruce Whitfield’s The Money Show.

Pay up to 45% less tax by investing in a small business (Section 12J incentive)

Pay up to 45% less tax by investing in a small business (Section 12J incentive)

Dino Zuccollo of Westbrooke Alternative Asset Management answers 12 FAQs about the Section 12J tax incentive.

9 tough questions you should never be afraid to ask your financial advisor

9 tough questions you should never be afraid to ask your financial advisor

Times are tough. Don’t spare her feelings! You must ask these questions of your advisor, implores Galileo Capital's Warren Ingram.

13 random thoughts on living a happier, less materialistic life

13 random thoughts on living a happier, less materialistic life

702/Capetalk's Kabous le Roux shares 13 thoughts he has on being less materialistic and living the good life right here right now.

Popular articles
[WATCH] Oil riggers rescue pooch 200 kms out to sea

[WATCH] Oil riggers rescue pooch 200 kms out to sea

The workers in the Gulf of Thailand spotted the exhausted dog clinging to the pipes of the rig and managed to pull her to safety.

'Removing Ramaphosa now as ANC president would be a challenge'

'Removing Ramaphosa now as ANC president would be a challenge'

Professor Steven Friedman says no ANC president has ever been removed between conferences.

[WATCH] JMPD's Wayne Minnaar sets the record straight on the hot cross bun

[WATCH] JMPD's Wayne Minnaar sets the record straight on the hot cross bun

Azania Mosaka joins the social media craze and takes a breathalyser after eating a hot cross burn.

 What you should know before replacing a tyre

What you should know before replacing a tyre

Brent Lindeque took to social media earlier this month with a lengthy account of his experience at a Tyger Wheel & Tyre branch.

Sam Smith cancels remaining Cape Town concerts

Sam Smith cancels remaining Cape Town concerts

British singer, Sam Smith's fans in Cape Town where left disappointed after his concert was cut short due to voice strain.

Caller gives Ramaphosa a new name: Dimakatso

Caller gives Ramaphosa a new name: Dimakatso

Listeners weigh in on the president's forever 'shocked' response to situations.

[WATCH] Can eating hot cross buns leave you in trouble with the law?

[WATCH] Can eating hot cross buns leave you in trouble with the law?

Khabazela shares tweets and Facebook posts that have gone viral.

'I just messed up one line, why is it news?' Darren responds to anthem backlash

'I just messed up one line, why is it news?' Darren responds to anthem backlash

Eusebius McKaiser speaks to Kurt Darren about forgetting the South African anthem's lyrics.

 Neglected infrastructure could be cause of Durban Golden Mile washing away

Neglected infrastructure could be cause of Durban Golden Mile washing away

Independent environment journalist Tony Carnie says pumps that transport sand along the beach appear to have been not maintained.