"*" indicates required fields

Price: R0.00

Most common types of unsecured credit

There are literally hundreds of loan products available and it can often become quite confusing to choose the right product. As an example, very few people know that there is a difference in interest rates between credit cards and personal loans. This sector (often referred to as unsecured lending) is divided up into 3 main categories and they are listed below with examples of each.

UNSECURED CREDIT
FACILITIES

Are facilities that can be used over and over, obviously if the payments are made each time. Examples of these types of products are Credit Cards, Store Cards, Overdrafts and Revolving Credit Plans. They usually have the lowest interest rate of the unsecured credit products. The maximum amount of interest Credit providers may charge on these agreements is the current Repo Rate plus 14%. The cost of credit on these agreements is often further reduced because only one initiation fee is charged at inception of the loan.

UNSECURED CREDIT TRANSACTIONS

Are products like personal loans. The full loan amount is given to the consumer and the payments are typically fixed for the period of the loan. Once the loan is repaid, one would need to reapply for the loan incurring new initiation fees and charges. The maximum interest rate applicable to these agreements is capped at the current Repo Rate plus 21%.

What adds to the cost of credit is that initiation fees are charged each time the loan is taken, so unlike a credit card with a budget facility that can be extended to a year, and then reused for a new transaction, this loan would automatically be closed at the end of the repayment period.

SHORT TERM CREDIT TRANSACTIONS

Are loans of less than R8000 over a period no longer than 6 months. These are often called payday loans and is by far the most expensive form of credit. Consumers who make use of these products often don’t realize that the approximately 20% cost of credit is charged per month, and therefore should be compared to products like credit cards that charge similar interest rates over a year.