What Is a Payday Loan? What Are Safer Alternatives In South Africa?

Payday loans in South Africa are typically short-term loans ranging between R100 and R5,000. Several financial experts consider payday loans predatory because of their very high interest rates and fees. Usually, payday loans attract Africans with low or bad credit since they want a no-credit-check process.

What meant by payday loan in South Africa?

As we hinted above, a payday loan is a short-term and small amount loan that’s often due until the borrower’s next payday, typically anywhere between two or four weeks. Unlike bank loans, payday loans are designed to provide quick access to money and tackle unexpected financial challenges.

One of the attractive features of payday loans is that such types of loans are available for people with bad credit. It seems ideal for bad credit borrowers who need immediate cash but are rejected for loans from banks due to adverse credit scores.

However, always remember to use payday loans responsibly for short-term financial needs and only when all other credit options are exhausted to avoid the cycle of debt.

At Payday Gorilla, our payday lenders are responsible and offer short-term payday loans from R100 to R5,000, and if your loan is approved, you will get funds to your bank account within 10 minutes. Generally, a payday loan is due on your next payday, but you can repay it over 3-6 months with monthly/weekly installments.

How do payday loans work?

Similar to other loans, payday loans working mechanism is the same. Unlike personal loans or cash advances, payday loans are good when urgent and fast cash is required with a credit history check. Here’s how payday loans work in South Africa:

Before applying for payday loans online, remember that such loans come with whooping interest rates and fees. Additionally, keep in mind that a combination of high rates and shorter repayment times can trap borrowers into a deadly cycle of debt. Ensure you earn enough income to afford your loan on the agreed time. Otherwise, it could harm your credit score, too.

How much does a payday loan cost in South Africa?

The National Credit Act regulates payday loans in South Africa, which also limits interest rates and fees by payday lenders. The fee and interest rate are usually combined to calculate the payday loan cost in South Africa. Here are some general highlights that impact payday loan overall cost:

• The cap on interest rate on payday and other short-term loans is 5% monthly.
• In South Africa, the initiated fee is limit at 5% of the total loan amount of R1000 or less, 15% for above R1000.
• In South Africa, payday loan lenders can also charge a monthly service fee — capped at about R60.

Remember: Those are the absolute limits, and payday loan charges can vary from lender to lender. On top of that, additional fees and growth of interest are also required from the lender. If you don’t repay your loan on the due date, increase the total cost of a payday loan afterwards.

Make sure to review your loan contract carefully and do a pre-calculation of all these costs.

Top 5 safer alternatives to a payday loan in South Africa

If your financial position is trembling, consider some safer alternatives to a payday loan in South Africa:

1. Borrowing from your family or friends: If your family or friends are financially strong, ask them directly for a loan or financial help instead of applying to high-interest payday loans in South Africa. However, before taking help from them, make sure loan terms and repayment plans match with you; otherwise, it could negatively affect your health relationships.
2. Personal loans: Mainly, such loans are offered by banks, credit unions, or online lenders. The benefits of personal loans are that they are offered at lower interest rates and higher borrowing amounts than payday loans.
3. Credit union loans: Many credit unions in South Africa offer short-term and small-amount loans at affordable interest rates compared to payday loans. Credit union loans are member-oriented. Hence, they may come with lenient terms and financial management advice.
4. Credit card advances: Many credit card companies offer credit card advances to their customers. Typically, such credit cards allow to withdraw cash from nearby ATMs. Although, you need to pay higher interest rates than regular credit card purchases.
5. Salary advances: Most employers give privileges to their employees by offering a salary advance program. It is like a short-term loan based on an employee’s net income and repayment deducted from later from their salaries. Generally, salary advances are interest-free and safer alternatives to payday loans.

Conclusion

Payday loans in South Africa now become an important part, especially for Africans facing ups and downs with their income and expenditures. In particular, payday loans online provide instant cash access through simple and online applications, unlike traditional banks.

Today, payday loan direct lenders in South Africa have brought a lot of innovations blended with modern technology to please customers. The National Credit Regulator (NCR) also introduced strict regulations to protect borrowers from payday lenders’ predatory practices.

If you don’t want to apply for a payday loan, don’t worry; we have already shown you the best alternatives to payday loans in South Africa that give you access to credit at a lower cost.

Payday Gorilla is the next-generation short-term and long-term credit products provider. We offer great speed and convenience that you may get with our instant payday loans online in South Africa at affordable interest rates.