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

702 welcomes all comments that are constructive, contribute to discussions in a meaningful manner and take stories forward.

However, we will NOT condone the following:

  • Racism (including offensive comments based on ethnicity and nationality)
  • Sexism
  • Homophobia
  • Religious intolerance
  • Cyber bullying
  • Hate speech
  • Derogatory language
  • Comments inciting violence.

We ask that your comments remain relevant to the articles they appear on and do not include general banter or conversation as this dilutes the effectiveness of the comments section.

We strive to make the 702 community a safe and welcoming space for all.

702 reserves the right to: 1) remove any comments that do not follow the above guidelines; and, 2) ban users who repeatedly infringe the rules.

Should you find any comments upsetting or offensive you can also flag them and we will assess it against our guidelines.

702 is constantly reviewing its comments policy in order to create an environment conducive to constructive conversations.

Read More
Best offshore investments right now (according to PSG Wealth)

Best offshore investments right now (according to PSG Wealth)

Looking for a hot tip? The Money Show’s Bruce Whitfield interviews PSG Wealth Portfolio Manager Jonathan Fisher.

3 best stocks you can pick right now (by Capricorn Fund Managers)

3 best stocks you can pick right now (by Capricorn Fund Managers)

Right now these three companies are they very best investments in South Africa and abroad, says fund manager Seten Naidoo.

3 best JSE investments right now (JM Busha Investment Group)

3 best JSE investments right now (JM Busha Investment Group)

The Money Show’s Bruce Whitfield interviews JM Busha Investment Group MD Joseph Busha.

You have too many eggs in too few baskets (e.g. your home, Naspers in your RA)

You have too many eggs in too few baskets (e.g. your home, Naspers in your RA)

Personal Financial Advisor Warren Ingram gives advice on solving a problem most have, but few are aware of.

Don’t understand much about money (investments, etc.)? You’re not alone!

Don’t understand much about money (investments, etc.)? You’re not alone!

The Money Show’s Bruce Whitfield interviews Isithebe Financial Wellness Founder Sandra Mokhonoana.

3 best investments on the JSE right now (by Ashburton Fund Managers)

3 best investments on the JSE right now (by Ashburton Fund Managers)

Looking for stock picks? The Money Show’s Bruce Whitfield interviews Fund Manager Jason Forssman.

Popular articles
Home Affairs to follow up on special dispensation permit for Zimbabweans in SA

Home Affairs to follow up on special dispensation permit for Zimbabweans in SA

Home Affairs Minister Hlengiwe Mkhize says her department will respond to all Zimbabweans under special dispensation.

So what exactly is radical economic transformation?

So what exactly is radical economic transformation?

Wits associate professor of economics Christopher Malikane speaks to Azania Mosaka about the term that is being bandied about.

Meet self-made millionaire (net worth – R400m!) property mogul Sisa Ngebulana

Meet self-made millionaire (net worth – R400m!) property mogul Sisa Ngebulana

How did Ngebulana build his empire? The Money Show’s Bruce Whitfield interviewed him for his weekly “ShapeShifter” feature.

It's not the end of the road... Top tips to improve your matric

It's not the end of the road... Top tips to improve your matric

"Recognise that it’s not the end, it’s the beginning." Expert advise for school-leavers who want to improve their results.

'The university degree is dead'

'The university degree is dead'

Flux Trends founder Dion Chang gives five reasons why he believes getting a degree is past its sell by date.

5 advantages of leasing instead of owning a car (lower monthly payments!)

5 advantages of leasing instead of owning a car (lower monthly payments!)

Want (or need) a new car? Dale Scorer (a wealth manager at AlphaWealth) reckons you should consider leasing.

3 easy questions could bag you R2000!

3 easy questions could bag you R2000!

WIN R2000! But only if you can prove you're a whiz of the MTN Biz Quiz by answering the following three questions...

Blesserfinder: Matching you with a sugar daddy near you

Blesserfinder: Matching you with a sugar daddy near you

Is social trend Blesserfinder, where girls are allegedly matching up with rich 'benefactors' in exchange for sex, a real thing?