Many of us need access to a short-term loan at one point or another – whether to pay for car repairs, cover staff salaries or handle an unexpected emergency.

However, with so many financial organisations in South Africa now offering short-term loans, it can be hard to determine the best option.

What is a short-term loan?

Also called a micro loan, a short-term loan is defined by the National Credit Act as an unsecured loan to a maximum of R8000, payable over no longer than six months.

The NCA is responsible for setting limits on the fees and interest rates that creditors can charge for short-term loans. Currently the maximum interest rate for a short-term loan is 5 percent per month, or 30 percent over six months.

Common types of short-term loans include payday loans, fixed short-term bank loans and asset-based loans, like those we offer at Lamna.

Payday loans

A payday loan is a small cash loan, granted on condition that you repay the loan amount plus interest within a short period – usually when you receive your next pay cheque.

Payday loans are popular with South Africans because they’re easy to secure. There are no credit checks and lenders pay out on the same day you apply.

However, if you’re unable to repay the debt in full, with interest and service fees, within the agreed time period, late fees and interest can accumulate quickly. This can lead to a vicious cycle in which individuals take out additional loans just to pay the interest that has accumulated on their initial loans.

A payday loan is a sensible option only if you’re absolutely sure you can repay the loan plus interest within the stipulated time.

Bank loans

If you have a good credit rating, you may be able to get a fixed short-term bank loan. Unlike payday loans and asset-based loans, a short-term bank loan can take from a few days up to a few weeks to be approved.

The amount that you can borrow is usually determined by your credit profile but ranges from around R1000 to R8000. Typically the loan plus interest is repayable within a period of one to six months.

The downside to this type of loan is that any deposits made into your account from the day that the loan is approved may be allocated toward repayment of the loan. Also, failure to repay the loan on time is likely to damage your credit rating.

Short-term, asset-based loans

Short-term, asset-based lending is another popular option, in South Africa and worldwide. With this type of loan, you provide a personal asset of value – such as an item of jewellery, a paid-up vehicle or even an artwork – as surety.

The asset you offer as collateral is stored in a secure facility until you’ve repaid the loan and interest in full. It’s then returned to you. This is a good option if you need cash fast (same-day payment is available) and have valuable assets you can use as collateral.

With Lamna, you can get a short-term, asset-based loan quickly and easily – without any red tape or hidden costs. For more information about using an asset to secure a short-term loan, contact us on 086 111 2866 or simply complete and submit our online application form.