Navigating personal loans: path to financial freedom demands caution

In an era where financial opportunities thrive and personal aspirations constantly change, personal loans emerge as a tempting solution to transform dreams into reality, whether it be renovating a home or embarking on a dream vacation.

While obtaining a personal loan might seem straightforward, the journey of repayment can often prove to be a challenging endeavour.

As personal loans gain popularity, it becomes evident that borrowers must possess a clear understanding of the intricacies and responsibilities that come with the credit.

Neven Narayanasamy, a specialist loans provider at DirectAxis, has warned that the road to debt freedom requires meticulous contemplation, disciplined planning, and a well-crafted strategy.

Narayanasamy underscores the necessity of comprehending the product thoroughly before applying for it.

A personal loan involves a lump sum lent to borrowers, which they are obliged to repay along with interest in monthly instalments over a predetermined period, typically ranging between 24 and 72 months.

Narayanasamy explains that creditworthiness plays a pivotal role in loan qualification and risk assessment, noting that higher credit score implies lower risk for the lender.

To approve a loan application, credit providers verify the applicant’s credit score, income, existing debts, and debt-to-income ratio.

While the National Credit Act places the onus on the credit provider to assess affordability, Narayanasamy emphasised that borrowers are equally responsible for furnishing accurate information and responding truthfully to queries.

Notwithstanding that acquiring a personal loan introduces both financial resources and responsibilities, necessitating careful management. By adhering to these responsibilities, borrowers can meet their commitments and cultivate a sound financial profile.

Narayanasamy advises against inflating income or withholding information, asserting that these precautions exist to protect borrowers.

In cases where affordability is compromised, he advises against taking on the loan, irrespective of the circumstances to avoid debt.

Nonetheless, debt is tempting. In difficult situations it often becomes too overwhelming, and borrowers fall into financial pits. Nedbank advises that debt ought to function as an economical financial instrument, providing advantages that justify its expenses.

Here Nedbank provides seven strategies for successful debt reduction and financial freedom:

Stay committed to debt reduction by envisioning a debt-free future, allowing your aspirations to drive your motivation, and guiding your spending choices.

Consistently paying above the minimum, recognising that your monthly payment covers both the principal debt and interest.

Embrace the “snowball debt reduction approach”, beginning with the smallest debt and gradually channelling cleared payments towards the next, fostering a sense of achievement and maintaining motivation.

Strengthen your income through part-time work, side gigs, or leveraging entrepreneurial endeavours, consistently evaluating and adapting your approach for a harmonious financial and personal stability.

Cut down on unnecessary spending and create a detailed budget that distinguishes between essential and non-essential costs.

Sell unused items: Convert unused belongings into cash by selling them online through platforms like Facebook Marketplace or OLX. Prioritise safety when conducting transactions with strangers by meeting in public spaces and involving friends or family. The proceeds from these sales can significantly contribute to your debt reduction efforts.

Sell possessions you do not need and use the proceeds to substantially reduce your debt.

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