Bank Better, Live Better

The Credit Boot Camp part 2: Choosing the right credit

It’s time for the second instalment of The Credit Boot Camp. With so many different types of credit available – revolving and personal loans, vehicle finance, credit cards and more – how do you know which one is right for you?

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The type of credit you use should depend on your personal needs and larger financial plan to live better. You may, for instance, need a personalised loan for a specific purpose, such as paying for an online learning programme, or you may need an access facility, which is revolving credit that is available over a lifetime and can be used for many different needs.

Financial Fitness Bunny, Nicolette Mashile, says a common problem she often comes across is people not realising that there are many different credit options and then they choose the wrong credit for what they need. “A personal loan isn’t the only credit facility available. Speak to your bank to find out which type of credit will suit your individual needs,” she says.

Ultimately, your choice should form part of a larger financial plan to manage your money. “Think of it as being part of wealth building, using it should be an asset to you and help move you forward financially. For instance, when you use credit to pay for studies that will develop your skills, which in turn will benefit your position at work and earning potential, it’s an asset,” says financial journalist Maya Fisher-French.

Mashile, agrees. “Credit should ultimately be used as a way to build a better future. When you use it sensibly, pay it off and meet your financial goals, it plays an active role to achieve your dreams.”

Let’s take a look at 3 different scenarios where you might need different credit solutions.

Scenario 1

Your car breaks down and must be fixed quickly because you need it to go to work. You have insurance but the repair costs are too small to claim for. You’ve also had an expensive month with doctors’ bills and school fees, so you have no money left over.

Type of need: Credit that can be used in an emergency, that’s available immediately, a cashless and secure payment for an unexpected expense.

Type of credit: With a Capitec credit card, you can get a credit limit of up to R500 000 depending on your credit history, profile and affordability. You won’t pay interest on any credit used for a period of up to 55 days. Interest rates are also offered from prime.

Scenario 2

You’re thinking about starting a business on the side to supplement your income. You’ll need to buy equipment and take a bookkeeping course to improve your business skills.

Type of need: Credit to get the money required for projects that will help you achieve financial success.

Type of credit: With a Capitec personal loan, you’ll get a personalised offer based on your affordability. You can choose the amount you need, the lowest monthly instalment or the lowest interest rate.

Scenario 3

Renovating your kitchen or bathroom is long overdue. Or maybe you’d like to convert your unused garage into a home office to increase the value of your property.

Type of need: Credit that’s available whenever you want to use it and where you decide how much you want to use. You want to choose the repayment amount or period and only pay for it when you use it – it won't cost you anything if you don't.

Type of credit: A Capitec Access Facility gives you access to revolving credit of up to R500 000. You’ll only pay for it when you use it and you’ll have lifetime access to it. As soon as you’ve repaid the credit you’ve used, it becomes available again.

Deciding to take on credit

Before you apply for credit, you need to know:

  • The amount of credit you require
  • The amount you can afford to pay back each month over the term of the loan
  • That your income will be stable and you’ll have enough money to cover your planned repayments and your necessary expenses
  • That your credit profile has no negative information. If it does, you may not qualify for credit

The cost of credit

When considering credit, always compare the costs and interest rates offered by different providers. Possible costs could be:

  • An initiation fee
  • A monthly service fee
  • Interest
  • A credit insurance premium

It’s also important to remember that you need to compare the total cost of credit when choosing a credit provider and not just the interest rate.

But make sure you do your research before you make any applications, as making too many credit applications can have a negative impact on your credit score.

3 important questions to ask before applying for credit

Now that you have a better idea of what credit is right for you, make sure you can answer these 5 questions before applying for it:

  1. What do I need the credit for, will it improve my life in the longer term?
  2. Is taking on credit the only way to get what I need?
  3. Can I afford the monthly repayments along with all my other financial responsibilities?

Credit offered by Capitec  

Capitec has a wide range of credit products available and each serves a different purpose. Read more about our credit options here. Don’t miss part 3 of The Credit Boot Camp. Read it here.

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