There are many reasons people apply for a bank loan, and depending on the need for the loan, there are different options available. These are some of the choices:
Personal loan – a line of credit that you can use for any reason, for example, to pay for a wedding. These have payback terms of between 12 and 24 months.
Credit card – a credit card is a form of personal loan. It has a credit limit and a minimum amount has to be repaid every month.
Payday loans – this is a temporary loan that will help tide you over until your next salary is paid.
Vehicle financing – can only be used to purchase a vehicle and usually requires the loan to be paid back within three to seven years.
Home loan – this is the most popular loan, and is dedicated to the purchase of a property. Home loans are usually issued for a maximum of 30 years, although 20 is the average.
While there are many reasons to use a loan facility, there are certain mistakes many people make when using them, which you should avoid.
Eight loan mistakes to avoid
- Neglecting to check your credit score before applying for the loan.
- Borrowing more than you need.
- Not checking your eligibility for a loan (different lenders have different requirements for the granting of a loan).
- Not comparing deals offered by multiple similar lenders.
- Not checking the fine print, especially the term of the loan.
- Having too many credit loans or debts.
- Not fully understanding what your monthly loan repayments will be.
- Not working to a budget and planning for your future financial needs.
Why you might be rejected for a home loan
In the current environment, banks are very open to applications for a home loan, and they do everything they can to grant one. However, banks are quite strict about ensuring their customers can afford the monthly repayments. This is something that they have to do by law, applying the conditions outlined in the National Credit Act (NCA). This law exists to ensure that those who apply for credit are not over-indebted, in other words, is this applicant in a position to meet the new loan obligation in the future?
A home loan is usually one of the biggest home loans granted to individuals, which is why they are structured to be paid off over 20 or 30 years. If a home loan had to be paid off in a timeframe similar to a vehicle loan (e.g., 3–7 years), not many people would be able to afford to buy a house, which is also not good for the country’s economy.
There are many reasons a lender might reject an application for a loan, particularly a home loan, including: not having a good credit score; over-extension of financial obligations; and/or not in regular employment.
There are many good resources across the internet and also Private Property’s advice centre that can advise you on how to prepare to buy not just any property, but your dream home.
