MyMoney Online

That little loan can dig a huge hole for you….

Unsecured lending seems to be a quick and easy way out of a financial crisis but its probably a spade which digs a bigger hole for you. The old saying, “If you find yourself in a hole, the first thing you should do is stop digging”, is so applicable to debt.

My wife recently showed me an SMS she got on her phone offering her a a personal loan without any credit referencing at an interest rate of 4,1%. This must be so enticing to someone who is desperate for cash. It offers a quick fix yet is one of the most expensive costs of lending around.

Interest rates are on the rise

The recent rate hike of another 25 basis points brings the repo rate ( the rate that the is charged to the banks by the reserve bank) to 7% and the prime lending rate (the rate which the bank lends money to us) to 10,5%. This simply means that the cost of debt is rising further digging your hole even deeper.

The cost of debt is more than you think

Now if you get offered a loan at 4,1% then there must be something more to it as it sounds too good to be true given the new rate of 10.5%.

Visiting one of many sites offering unsecured lending for blacklisted applicants I found a calculator which works out the interest over a period of unto 36 months. Taking a R10 000 loan over 24 months costs you R769 per month which means you pay R8 456 in interest. Over 36 months you pay R12 248 for a R10 000 loan! So you pay around 40% per annum.

Treat the cause

The main problem is that in most cases taking up this kind of loan treats the symptom and not the cause. Sooner or later you will have deal with getting out of debt instead of further into it. At the outrageous cost of unsecured loans your chances of getting rid of your debt make it so much more difficult.

The reality is that if you are borrowing to make ends meet you are living above your means. You will be better off finding ways to live under your means. Drastic times call for drastic measures. Even if it means scaling down on the house and or car. Borrowing at rates of 40% certainly won’t improve things.

Listen to the audio below for more information

Read more from Paul Roelofse at www.investforlife.co.za


This article first appeared on 702 : That little loan can dig a huge hole for you….


CapeTalk welcomes all comments that are constructive, contribute to discussions in a meaningful manner and take stories forward.

However, we will NOT condone the following:

  • Racism (including offensive comments based on ethnicity and nationality)
  • Sexism
  • Homophobia
  • Religious intolerance
  • Cyber bullying
  • Hate speech
  • Derogatory language
  • Comments inciting violence.

We ask that your comments remain relevant to the articles they appear on and do not include general banter or conversation as this dilutes the effectiveness of the comments section.

We strive to make the CapeTalk community a safe and welcoming space for all.

CapeTalk reserves the right to: 1) remove any comments that do not follow the above guidelines; and, 2) ban users who repeatedly infringe the rules.

Should you find any comments upsetting or offensive you can also flag them and we will assess it against our guidelines.

CapeTalk is constantly reviewing its comments policy in order to create an environment conducive to constructive conversations.

Read More
What you must learn from the Steinhoff and EOH share price collapses

What you must learn from the Steinhoff and EOH share price collapses

The Money Show’s Bruce Whitfield interviews Galileo Capital Personal Financial Advisor Warren Ingram.

3 JSE shares you should consider buying right now (by JM Busha Investment Group)

3 JSE shares you should consider buying right now (by JM Busha Investment Group)

The Money Show’s Bruce Whitfield interviews JM Busha Investment Group Managing Director Joseph Busha.

3 wealth creating shares to buy before yearend (by Anchor Capital)

3 wealth creating shares to buy before yearend (by Anchor Capital)

The Money Show’s Bruce Whitfield interviews Anchor Capital Fund Manager Tamzin Nel.

Are you missing out? Bitcoin (‘Zimbabwean dollar in reverse’) revisited…

Are you missing out? Bitcoin (‘Zimbabwean dollar in reverse’) revisited…

The Money Show’s Bruce Whitfield interviews Personal Financial Advisor Warren Ingram.

3 shares that’ll grow your wealth, if buy them now (by Ashburton Investments)

3 shares that’ll grow your wealth, if buy them now (by Ashburton Investments)

It’s stock pick time on The Money Show! Bruce Whitfield interviews Ashburton Investments Deputy CIO Nkareng Mpobane.

'The South African stock market is massively hedged against a weak rand'

'The South African stock market is massively hedged against a weak rand'

The Money Show’s Bruce Whitfield interviews Galileo Capital Personal Financial Advisor Warren Ingram.

Popular articles
'Banned ANC delegates have shot themselves in the foot, got what they deserved'

'Banned ANC delegates have shot themselves in the foot, got what they deserved'

Deputy Editor of Financial Mail, Sikonathi Mantshantsha says branches were warned but did not listen, and he has no sympathy.

Adam Habib: Where would the money to fund free education come from?

Adam Habib: Where would the money to fund free education come from?

Vice-Chancellor of Wits University Adam Habib says Zuma's promise requires about R40 billion in order to be fulfilled.

[LISTEN] 'I never wanted to be President, I was not ambitious'

[LISTEN] 'I never wanted to be President, I was not ambitious'

Listen to what President Zuma had to say on Friday at the #ANC54 Gala Dinner ahead of the elective conference.

JUST IN: Some delegates barred from voting #ANC54

JUST IN: Some delegates barred from voting #ANC54

ANC secretary-general Gwede Mantashe announced that some delegates will not be able to vote in this weekend's elective conference.

Van Damme: De Lille has until Monday to respond to maladministration claims

Van Damme: De Lille has until Monday to respond to maladministration claims

The DA has suspended Patricia de Lille from party activities but Eusebius McKaiser says its statement 'is clear as mud'.

LISTEN: Father of drowned toddler speaks of dangers and heartbreak

LISTEN: Father of drowned toddler speaks of dangers and heartbreak

Connor Weber, fell unnoticed into a bin of water and drowned.

Predictably awesome new Nando's ad reminds South Africans ‘we can fix our sh$t’

Predictably awesome new Nando's ad reminds South Africans ‘we can fix our sh$t’

Watch the Guptas pack their bags and run in Nando's inspiring new advertisement.