Unsecured Personal Loans: Comparison & Guide | Finder South Africa
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Unsecured personal loans

Get access to much-needed funds and enjoy more flexibility with an unsecured personal loan.

Elizabeth Barry
Elizabeth Barry

&

Zyane Tan
Zyane Tan
Updated
Fact checked

What's in this guide?

What is an unsecured personal loan?

An unsecured personal loan is a loan that allows you to borrow funds without using an asset as collateral. This general-purpose loan gives you complete flexibility and means that you can use the loan to cover a car repair, renovation or even a vacation.

To find out everything you need to know about personal loans, please see below for a fully comprehensive guide.

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What is the annual percentage rate on an unsecured personal loan?

The Annual Percentage Rate (APR) helps you understand the true cost of a loan. Displayed as a percentage, this rate includes both the interest rate and various fees and charges that come with the loan. It doesn’t include late fees, early repayment penalties or insufficient fund feeds.

What are the benefits of an unsecured personal loan?

Flexibility

Secured personal loans often have more restrictions on how you use the loan funds. For example, most car loans are secured by the vehicle purchase, so they have to be used to buy a car. Unsecured loans, on the other hand, can usually be used for any one or multiple expenses and purchases. Use the loan amount however you need to, such as purchasing furniture or consolidating debt (or both). How you use it is up to you.

Lots of options

This is a standard type of loan so you’ll find most banks and lenders offer their own version of an unsecured personal loan. This gives you a wide range of options to compare to find the right unsecured loan for you. You can choose which interest rate type you want (fixed or variable), which loan term works for you and which other features you want to take advantage of.

Rates

While interest rates are generally higher with unsecured personal loans compared to secured personal loans, you can still find loans that offer low rates.

How unsecured personal loans work

Unsecured personal loans generally let you borrow between R1,000 to R200,000 without needing to use an asset, like a car or property, as security. You can use the loan for any worthwhile purpose and repay the loan plus interest over an agreed term. Terms generally vary from one to seven years.

While you can generally use the funds however you want, you may be asked to list why you’re applying for an unsecured loan. This will form part of the lender’s decision.

Unsecured loans will generally have higher rates, lower maximum loan terms and allow you to borrow less than secured personal loans. You may also need to pay initiation fees or ongoing monthly service fees, so be sure to check these before you apply. Some unsecured personal loans will also come with additional features, such as the ability to repay your loan early without penalty.

Some lenders will require borrowers to take out a credit insurance policy to cover you in the event of death, disability or retrenchment over the course of the loan term. This can be taken out with the lender itself or through an external insurer provided it offers the same required benefits.

Why is the interest rate higher than a secured loan?

Interest rates on unsecured loans are higher for borrowers as the lender is taking on a higher risk. If your loan is secured, the lender can seize the asset you’ve used for collateral to recoup the outstanding amount, but this isn’t possible with an unsecured loan. To safeguard themselves, lenders charge more interest so they have more to fall back on should you default.

When should you take out a personal loan?

Since a personal loan may be used for almost any purposes, you might find it tempting to borrow the money for non-essential purchases, such as a holiday or retail therapy. However, you should always consider if these are sensible reasons to rack up debt for.

Personal loans are usually an option to consider in times of financial emergency and here are some examples of genuine circumstances when a personal loan can come in handy:

  • Medical emergency. If you or your loved one require emergency medical care and you need to raise a significant sum to cover the medical bills urgently.
  • Family emergency. Unexpected death could mean settling hefty funeral expenses with little or short notice.
  • Vehicle repair. If your car, motorcycle or truck has broken down and you rely on it to make a living or to get to work, a personal loan can help cover the costs of repair.
  • Educational expenses. If your laptop broke down and you need a new one for your coursework, or you’re required to buy expensive textbooks or art materials.

How do you find the best unsecured personal loan?

Comparing your unsecured personal loan options is an important part of finding the right loan. Here are some things to keep in mind when doing so:

  • Interest rate. Check whether the interest rate is fixed or variable and whether it’s competitive.
  • Minimum and maximum loan amounts. All lenders will set a minimum that you can borrow and the majority will have a maximum – these usually vary between R1,000 and R200,000. It’s important to check that the amount you need falls between the two.
  • Fees and charges. You can be charged upfront and ongoing fees with unsecured loans, so check what these are before you apply. You can look at the Annual Percentage Rate (APR) which includes most of these fees for the total cost of the loan.

What to weigh up: The pros and cons of unsecured loans

Pros

  • No asset needed for security. When getting an unsecured loan, there’s no need to supply an asset as security. If you’re purchasing an asset with your funds, you won’t have to risk it, and you also won’t need to risk an asset you already own.
  • Flexible loan purpose. You can use the funds however you like. Once you’re approved, the funds will be transferred to you and you can use them to consolidate debt, purchase what you need to or to invest.
  • Easy application process. Applying for one of these loans is generally straightforward. The application can typically take place online if you can provide the appropriate documentation required.

Cons

  • Can have higher interest rates. As there is no collateral with unsecured personal loans, there are generally higher interest rates enforced by the lender to compensate for the lack of security.
  • Lower borrowing amounts. Unsecured personal loans generally have lower maximum borrowing amounts compared to secured loans.

Is there anything to avoid with unsecured personal loans?

  • Lying about what you need the funds for. Always be upfront with your lender about why you’re applying for the loan, whether it be for business purposes or to consolidate debts.
  • Getting into too much debt. If you are taking out an unsecured loan to consolidate existing debts, you should be wary of getting yourself into financial trouble by increasing your debt. Make sure you’ll be paying less with this new loan than you are currently forking out.
  • Check if the lender providing your credit is licensed. Always make sure you are getting an unsecured personal loan from is a licensed lender.
  • Fees and charges. Whenever possible, always do your best to avoid excessive fees and charges. The best way to do this is to make sure you do your research, ask questions and compare.

How to apply for an unsecured personal loan

To get an unsecured loan approved, you’ll need to meet a range of criteria set by the lenders, such as:

  • You must be at least 18 years old.
  • You must also have a good credit score and be able to provide proof that you can pay off the loan.
  • You may be asked to provide copies of your payslips, proof of residence, bank account statements and other credit contracts.
  • You’ll also need to provide your ID.

Frequently asked questions

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