Unsecured: the usual personal loan
Most personal loans in South Africa are unsecured. The lender has no claim on any particular asset; it relies on your income and your history of repaying credit. Because the risk is higher for the lender, the legal cap is higher too: the repo rate plus 21% a year, 28.25% today.
If you do not pay, the lender can still take legal action, obtain a judgment and, with a court's approval, ask for instalments to be deducted from your salary. What it cannot do is simply take a car or a house that was never pledged.
Secured: borrowing against an asset
Secured credit is backed by something the lender can sell if you default. The two common forms are a home loan, including borrowing more against an existing bond, and vehicle finance or other instalment agreements, where the lender owns the goods until you have paid. The caps are lower: the repo rate plus 12% for mortgage agreements (19.25% today) and plus 17% for other credit agreements such as instalment agreements (24.25%).
The trade-off is the asset itself. Miss enough payments and the lender can repossess the car or, through the courts, have the house sold. A cheaper rate is worth that risk only if the repayment is comfortably affordable for the whole term.
If you fall behind
With secured and unsecured credit alike, a lender must first send you a written notice under section 129 of the National Credit Act before it goes to court. The notice proposes that you refer the agreement to a debt counsellor or agree a plan to bring the payments up to date, and the lender must wait at least ten business days before it starts legal action.
Use that time. Call the lender, explain what changed and offer what you can pay. With secured credit the stakes are higher, because the end of the process can be the loss of the car or the house, not only a judgment on your record.
Which suits what
For a few thousand rand over months, an unsecured loan is the norm. For a large, planned amount — a renovation, solar installation or paying off expensive debt — homeowners with equity in their bond may pay far less by borrowing against it, but over a much longer term, which can raise the total cost. Compare the total repayable, not only the rate.
Be wary of anyone who offers a loan in exchange for holding your car's registration papers or your bank card. Those arrangements are not secured lending under the National Credit Act and often hide charges well above the legal caps.
Comparing your options
Whatever the form, the lender must give you a quotation showing the rate, the fees and the total you repay, binding for five business days. Our guide on personal loan interest rates explains what drives the rate, and our page on personal loans in South Africa lists registered lenders with their amounts and terms.