What unsecured means
A loan is secured when you pledge something the lender can sell if you stop paying: a house under a home loan, a car under vehicle finance, goods under an instalment agreement. An unsecured loan has nothing like that behind it. You sign the agreement, the money is paid into your account, and the lender's only protection is your promise to repay and its right to go to court if you do not.
In South Africa this is the ordinary way to borrow a few thousand or a few tens of thousands of rand. Short-term loans and most personal loans are unsecured, and the National Credit Regulations give them their own category with its own caps. When a lender advertises «no collateral» or «no guarantor needed», it is describing what almost every lender on this page already does.
Who can get one
Without security, the lender looks at you instead. Before it lends, every registered credit provider must run an affordability assessment: your gross and net income, your existing debt repayments and your necessary living expenses. The regulations require it to verify your income, usually from your latest three payslips or bank statements showing your latest three salary deposits, and it checks your credit record at a credit bureau.
That is why a regular income paid into a bank account matters more than anything you own. A permanent job with a payslip is the easiest case. Self-employed people can qualify on bank statements, though fewer lenders accept them. A record with recent defaults narrows the choice and usually the amount, and anyone under debt review may not take on new credit at all.
What the law lets a lender charge
For an unsecured credit transaction the interest rate may be at most the repo rate plus 21% — 28.25% a year while the repo rate is 7.25%. Short-term credit, meaning up to R8 000 repaid within six months, has a monthly cap instead: 5% a month on the first such loan in a calendar year and 3% on later ones.
On top of interest a lender may charge an initiation fee of at most R165 plus 10% of the amount above R1 000, never more than R1 050, and a monthly service fee of at most R60, with VAT added to the fees. On R10 000 over 12 months those caps allow an instalment of at most R1 026.28 and R13 630.90 repaid in total. Most offers cost less; the caps are the line no registered lender may cross.
Unsecured or secured?
Security makes credit cheaper because it lowers the lender's risk. A home loan, including a further advance on an existing bond, is capped at the repo rate plus 12% (19.25% today), and vehicle and other instalment finance at the repo rate plus 17% (24.25%). If you own a home with equity in it, borrowing against the bond can cost far less a year than any unsecured loan.
The price of that saving is the asset itself. Miss enough payments on secured credit and you can lose the car or, through the courts, the house. With an unsecured loan the consequences of not paying are serious — legal action, a judgment, deductions from your salary under a court order and a damaged credit record — but nobody can take an asset you never pledged.
Why people are still declined
No collateral does not mean no conditions. The most common reasons for a decline are an instalment that would not fit your income after your existing debts and expenses, income the lender cannot verify, recent missed payments on your record, or an amount larger than the lender offers. Lenders publish different rules, which is why the same person can be declined by one and approved by another.
Applying to many lenders in a row does not help: each application leaves an enquiry on your credit record, and a cluster of enquiries reads badly. Comparing first and applying to the one or two lenders whose rules fit you is the better order.
Warning signs
Because unsecured loans are the most common kind, they are also what scammers imitate. A registered lender never asks for a fee before paying out, never promises approval before seeing your details, and never keeps your bank card, PIN or ID document; the National Credit Regulator warns that an upfront payment for a loan is unlawful. Check the lender's NCRCP number on the National Credit Regulator's register before you sign.