
Collateral loans in South Africa have evolved into a significant alternative to traditional, short-term loans from the “big five” banks. They offer individuals and businesses a faster, easier way to secure funds.
In this article, we answer some of the most common questions about collateral loans in South Africa:
- What is a collateral loan?
- What are the pros and cons of collateral loans?
- Does one need a good credit score?
- Is it safe to get a collateral loan?
- What assets can be used to get a loan?
- How to apply for a collateral loan?
What are collateral loans?
A collateral loan is a type of secured short-term loan that uses a physical asset as collateral. The loan amount is based on a percentage of the current market resale value of the asset.
The lender takes temporary possession of the asset and stores it securely until the loan is repaid. This is how the loan is secured.
Once the loan is repaid, the asset is returned to the client. Ownership is unaffected.
Pros and cons of collateral loans
Collateral loans offer many advantages and a few disadvantages compared to traditional bank loans. The pros of collateral loans include:
No credit checks
The lender doesn’t perform a credit check and the loan doesn’t affect your credit score or credit history.
No need to disclose income
The loan is secured by a physical asset, so there’s no need to submit payslips or disclose your monthly income.
Fast access to money
The loan application process is fast. Most loans are approved within 24 hours and the funds transferred directly into your bank account.
Simple application
The application process is simple and can be done online. There is very little supporting documentation needed.
On the other hand, there are a few cons to consider.
No access to your asset
When you hand over an asset to secure a loan, you won’t have access to it for the loan period. This can be especially inconvenient when a vehicle is used to secure a loan.
The asset could be lost
Unless you’re sure you’ll be in the position to repay the loan within a few months, there is a regrettable risk of losing the asset to cover the loan amount.
Collateral loans are short term
If you need to repay the loan over a few years, this may not be possible. Collateral loans are usually short term and need to be repaid within a few months.
Do you need a good credit score?
No, you don’t need a good credit score to get a collateral loan. The loan is secured by a physical asset.
The value of the asset stands surety for the loan amount. In the event of the borrower defaulting, the asset is sold.
Is it safe to get collateral loans in South Africa?
Yes, they’re perfectly safe. Collateral loans are no different to other types of loan.
As long as you find a reputable lender that is a registered financial services provider and is NCR compliant, there are no undue risks.
The only difference to a loan from a bank is how the loan is secured.
Assets you can use to get a loan
Many personal assets that have a decent value and are paid off in full can be used as collateral on a loan. For example, if you use a car to get a loan, the vehicle must be fully paid (not still financed) and it must be in your name.
To get a collateral loan from LoanAgainst, you can use assets such as cars, boats, motorcycles, gold, jewellery, luxury watches, art and antiques.
How to apply for collateral loans in South Africa
LoanAgainst offers collateral loans against a range of assets. We’re a registered financial services provider with offices in most major cities.
Apply online today or contact us on 079 726 4690 to find out more about collateral loans in South Africa.