The best and worst ways to borrow money during a crisis and how to spot scammers

COVID-19 has put a strain on our economy, and sadly, many peoples’ lives will be affected by this virus. Even if you are fortunate enough to not fall ill, you’ll still have to stay at home during the 21-day national lockdown. This can put tolls on families, as many breadwinners do not work in industries that can work remotely.

Because many South Africans live paycheck to paycheck, this causes people to scramble to make ends meet. Sometimes falling into traps to pay their outstanding debt bills, expenses and necessities. Now, if you require additional money during this crisis, you can get a personal loan.

However, like everything else, there are good and bad ways to borrow money that can leave you in a tricky financial predicament in the long run. So, before you fall into a trap, read our article on what to do to ensure your means helps you rather than sets you back in life.

Avoid payday loans at all costs

This may seem like something that’s been said far too many times, but it’s important to understand that payday lenders are never the answer. Not only do they have high-interest rates, but they can also pull you into a vicious cycle of debt. And, for most people, it’s difficult to leave once you’re in. How it works is that when payday comes, these lenders will take all their money and their interest. If you didn’t have that money before, who’s to say you’ll have it now, leaving you in a tough position once again. Next, you’ll see yourself getting into another payday loan to cover the money they had deducted. So, as you can see, it is easy for you to fall in an ongoing cycle that will cause you too many financial hassles.

Increasing credit card limit

A credit card can help you pay for day to day expenses, but if you already have a large outstanding balance, this will pull you further into the life of debt. This is why this needs to be your last resort, as just like payday loans, their interest can be brutally high and can later damage your credit score if it’s not paid well. But, if need be, make sure you only purchase essentials and use your money wisely. wisely.

Personal loans

Personal loans can be helpful for several reasons. But you also need to be careful. So, only apply for a personal loan if you want to pay off all your other outstanding debts. This is when a breadwinner or contributor has either lost their job or experienced a pay cut during the lockdown. If worked out correctly, this can help unburden the load of your debt and give you a smaller monthly instalment that allows you to still cover necessities during this ordeal. Before you apply for a personal loan online, calculate the total amount of all your debts. Once you’ve calculated them, then you can use a personal loan calculator to see how much you would repay once you get pre-selected for financing. Lenders have substantial information on their website that can help you without going to the branch. And, lenders even have debt insurance cover for their loans. So, at least you know you’re taking a safer option should you get ill during the Coronavirus pandemic.

Your savings

Yes, your savings do count as borrowed money, especially if it wasn’t an “emergency fund”. Dipping into your savings account can impact end goals that you had set aside for yourself. However, it is one of the best alternatives as it still is your money. But, once this pandemic has subsided, it is in your best interest to start an emergency fund. That way, you have money to cover yourself in an emergency. A rule of thumb for starting up an emergency account is to try and save up at least three months worth of your monthly repayment expenses. This will give you a safety cushion of three months, should anything happen to you or your livelihood.

How to spot a loan scam

Now, unfortunately, there will be people who take advantage of these tough times and use them against vulnerable people. This is why you need to be aware of any scams, should you decide to apply for a loan to survive the virus. Here are additional tips to help you spot scammers.

Avoid loan offerings

As desperate as you may be, do not accept or entertain loans that come out of the blue. The ones which miraculously make their way to your inbox. In most cases, these are scams and not remarketing efforts from registered credit providers. And, always remember that reputable lenders won’t come to you offering you a loan unless you’ve made an inquiry or applied online.

If it seems too good to be true then it is

If you are being sold this “incredible once-off deal” always know that this is a red flag. Yes, the lender has their competitive prices, especially with interest rates, but they are still more or less the same. Or, if you get advertisements saying “no credit check” always ask yourself why a lender would risk their money on someone they have never vetted? So, when you see a loan, always ask yourself if this offer is realistic, and compare it to other popular lenders.

Check if they’re registered with NCR

The National Credit Regulator (NCR) was established to regulate South African credit industry. And, every legitimate credit provider needs to be registered under the NCR. So, to be certain that the loan agreement you’re agreeing to is legitimate, make sure you check to see if they are registered.

Check to see if they have a physical address

Lastly, you want to be certain the lender has a physical branch you can go to. Most lenders have been in the business for a long time and they have offices. If a lender contacts you, and only has a website, email address and phone number, you need to question its legitimacy.

Final thoughts

These are challenging and financially straining times, so make sure you are cautious, even when you’re desperate. Money scams have become a norm in our society, and it is up to you to find a trusted solution. So, be calm and always think things through, especially when it comes to borrowing money.

About RJ Frometa

Head Honcho, Editor in Chief and writer here on VENTS. I don't like walking on the beach, but I love playing the guitar and geeking out about music. I am also a movie maniac and 6 hours sleeper.

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