The term “private loan” generally refers to a small, short-term loan, or to a loan from a source other than a financial institution. For example, it might be a loan from your company, a peer-to-peer loan or a loan from a friend or family member.
In the United States, the term refers to a non-federal student loan – but it doesn’t have that meaning here in South Africa.
Private loans have a number of benefits. Often there’s no need for credit checks, and repayment terms may be more favourable than for traditional bank loans.
Here, we consider some of the options for securing a private loan.
The National Credit Act (NCA) defines a microloan as any loan under R8000 and payable over not more than six months.
The interest rates on these short-term loans tend to be set to the maximum. Examples of microloans are payday loans and short-term cash loans.
Peer-to-peer (P2P) lending generally occurs through an online service, which acts as an intermediary between borrowers and lenders.
In the case of a P2P loan, the lender dictates the repayment terms. Lenders often view these loans as investments, and their interest is in getting quick, good returns.
At their discretion, some companies grant loans to their employees. A contract outlines repayment terms, including the interest rate, and instalments are generally taken directly from employee’s salaries.
Repayment periods on these loans tend to be short.
Loans from friends and family
If you have a close friend or family member who can afford it, this is probably one of the simplest ways to get the extra cash you need.
However, a serious pitfall of this type of personal loan is its unofficial nature. If the terms of the loan aren’t completely clear and honoured by both parties, it can damage relationships.
If you’re considering borrowing from a friend or family member, draw up and sign a clear, legally binding contract.
Asset-based loans are loans given against the value of personally owned assets
An asset-based loan is an example of a secured loan, meaning that it’s backed by collateral. Because there’s less risk to the lender, secured loans are often available with lower interest rates than other loan types. Also, credit checks often aren’t required.
Once the loan and agreed interest is repaid, your asset is returned to you.
Asset-based loans from lamna
At lamna, we offer same-day cash loans against the value of a wide range of personal assets, from luxury watches and jewellery to vehicles or artwork. Our interest rates are competitive, and we’re fully compliant with the National Credit Act.