2012-11-05 11:29:54 - EDULOAN’S SMART GUIDE TO BORROWING MONEY
• Shopping around for the best interest rate could help your budget
• Interest rate and repayment term have a far bigger impact on our bank accounts than we sometimes realise
Johannesburg, November 5 2012: Many of us will need to borrow money, from time to time, some of this will be needed as a student loan to help finance our studies. But if you’re not clued up, the world of credit can be a scary and misleading journey.
There are several factors to consider when borrowing money. Most of us only consider the monthly instalments when taking out a loan. But the interest rate and repayment term have a far bigger impact on our bank accounts than we sometimes realise. The term is the period you have in which to pay back the money. The interest rate is the cost of borrowing money, and is expressed as an annual percentage. Despite this, it is often calculated monthly or even daily. Both the term and the interest rate help to determine the size of your monthly repayment, and the amount of time you’ll spend in debt.
With a higher interest rate, your monthly payments will increase. If you borrow
R10 000, for 12 months at 9% interest, your monthly instalment will be R874.51. But if you borrow the same amount of money, also for 12 months, at 11% interest, you can expect to pay R883.82. These differences seem incremental but consider that this variance is accentuated for larger amounts, and longer time frames.
Compound interest adds a further complication, and applies to most situations when we borrow money. This is interest on interest. It is when the interest of a sum of money is added to the principal, and then bears interest. It occurs when the interest we owe is added to the sum of money we borrowed (principal amount) and itself earns interest.
We also have to think about the term of the loan. If you have a longer term, your monthly payments may be lower, but will end up paying more money over time. It’s better to borrow money over a shorter term, and to get the lowest interest rate we can.
“We often don’t like to think about interest rates because it sounds too technical. But shopping around for a better interest rate can really help your budget in the long term. You’ll be able to pay off the loan faster, and your monthly repayments will be lower,” says David Scholtz, chief financial officer at Eduloan.
Eduloan offers education financing, cost associated with starting the loan and monthly service fees at very competitive interest rates The company has a presence on campuses throughout the country to handle queries from students and prospective students.
Paying off debt affects your ability to save money and achieve financial goals such as buying a vehicle, a house or travelling overseas, so you should always aim to pay back loans as soon as you can. If you default on a loan, it will be harder for you to get credit in the future.
Ask for the total amount you’ll have to repay, consider whether the monthly repayment is affordable and whether you might get a better deal elsewhere. A key advantage with Eduloan is that it offers pay-as-go study loans at an affordable interest rate. "This means you get to repay your loan as you study leaving you debt free on completion of your course," says Scholtz.
Since 1996, Eduloan has provided more than 670 000 study loans valued at R3.2-billion helping students unlock their potential. Currently, Eduloan approves between 40 000 and 50 000 loans annually to students, a significant proportion of them working professionals. Eduloan’s loan offerings include repayment options at extremely affordable, fixed-interest rates, for the duration of the loan period. Study fees are paid by Eduloan directly to the institution, taking the administrative burden away from the student/corporate institution. Loans can be paid back either through a salary deduction or a debit order.
For more information, call Eduloan’s Client Services Department on 0860-55-55-44 or visit www.eduloan.co.za. Follow us on Twitter/EduloanSA and Facebook/EduloanSA.
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