Debt consolidation loans are sold as the tidy answer: one loan, one instalment, the old debts cleared. The adverts skip one thing. Many people who apply are turned down. An application usually leaves a footprint on your credit record, and that footprint can make the next attempt harder. Here is how to work out whether a lender would say yes before you apply, and what to do if the answer is likely no.
How do you qualify for a debt consolidation loan?
You qualify when a lender is satisfied of three things: a regular income, a history of paying what you owe, and room in your budget for the loan's monthly instalment.
South African credit law requires lenders to test affordability before they lend, so expect questions about your payslips, bank statements and existing commitments. Your credit record carries weight too. Accounts in arrears, defaults or judgments will usually end an application quickly, and if you are already under debt review you cannot take on new credit at all. A clean record makes approval realistic. Anything less, and approval becomes less likely, so check your credit report and ask the lender about their criteria before applying.
How much loan can you get on a R7 000 salary?
Usually less than you expect, because lenders judge what is left after your expenses, not your salary on its own. The gap is what matters.
If you earn R7 000 and rent, transport and food take R6 500 of it, almost nothing is left to repay a loan with, so most lenders would decline you or offer a small amount. The instalment has to fit inside that gap every month for the full term, and a loan big enough to clear real debt needs a substantial instalment. If your sums look like this, get advice before you apply anywhere: you can compare registered debt counsellors on our directory without leaving a mark on your record.
What is the monthly payment on a R100 000 loan?
The instalment depends on the interest rate you are offered and the number of months you repay over, and those two numbers move it dramatically.
Stretching a R100 000 loan over a longer term lowers the monthly payment but raises the total cost, often to well more than you borrowed. Shorten the term and the reverse happens. A R200 000 loan follows the same maths at twice the scale. Before you sign, ask for the total you will have repaid by the end, not just the monthly figure. Credit providers must show you this. It is the honest measure of what the loan costs you.
Do consolidation loans hurt your credit score?
Applying for one can dent your score, especially if you make several applications in a short stretch.
Credit bureaus record the enquiries that lenders make when you apply for credit. A string of applications in a short stretch makes you look like a borrower other lenders have refused, and that can drag your score down before anyone assesses you properly. A loan that is granted and repaid without missed instalments can slowly rebuild your record, though the same loan with late payments does the opposite. Apply once, carefully. Pick a lender likely to say yes rather than spreading applications around hoping one lands.
The signs you'll be turned down before you apply
Many declines can be predicted without filling in a single form, if you look honestly at a short list of signs.
- Behind on one or more accounts right now
- Declined for any kind of credit in recent months
- An income that is irregular or hard to prove with payslips
- Rent, food, transport and existing debt payments leaving little or nothing over
- Defaults or judgments on your credit record
- Already under debt review, which generally rules out new credit
You are entitled to a free credit report from the credit bureaus each year, and checking your own record does not affect your score, so look at it before lenders do. If two or three of these signs fit you, a consolidation loan will probably not come through. Each attempt usually makes the next one harder. Our guide to overcoming your debt continues from there.
When debt review is the better route
Debt review is usually the better option once you are already falling behind, because it reworks the debt you have instead of lending you more of it. A registered debt counsellor negotiates with your creditors to reduce your monthly payments to something you can afford, and you make one payment instead of many. While the process runs, it can also protect you from legal action and repossession.
The trade-offs are real. No new credit while you are under review, the process is noted on your credit record, and it is not free. Fees are regulated, so ask any counsellor for the current fee schedule in writing before committing.
Before you commit to anyone, check that the debt counsellor is registered with the NCR. Our review of the best debt review companies in South Africa can help you narrow the field. Then work through the counsellors listed on our site, pick two or three, and ask what they would do with your numbers. A good counsellor can tell you plainly whether debt review or a loan suits you better, and that first conversation should cost you nothing but the phone call. Confirm there is no charge when you book.
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