2020: Getting a Loan If You’re Unemployed
The COVID-19 pandemic and lockdown have resulted in a jobs bloodbath.
Conservative estimates are that three million South Africans are now unemployed as a direct result of the pandemic and lockdown.
In 2020, getting a loan if you’re unemployed might seem impossible.
Steady income a prerequisite for traditional lending models
Without proof of income, there’s little chance traditional lenders like banks and pay-day loan providers will consider approving a loan.
If they do, there are major hurdles in the way of the majority of cash-strapped South Africans.
Hurdles to personal loan approval
As a country, South Africa has one of the highest levels of household debt in the world.
To compound this, many debtors fail to meet their monthly repayment terms.
A poor debt-repayment history means the loans you qualify for are more expensive.
That’s exactly what you want to avoid when you’re out of work.
Impact of a poor credit score
When you’ve missed loan repayments, defaulted on debt or declared voluntary insolvency or bankruptcy, your credit score takes a serious knock.
The chance of securing a loan is highly unlikely.
High risk equates to steep interest rates
There’s a toxic relationship between your credit score and the interest rates and fees charged by lenders.
Loan providers base their risk assessment on your financial track record and credit score. A below-par score signals high risk.
How do lenders mitigate the risk of lending you money? By downscaling the size of the loan, shortening the repayment terms and charging steep interest rates and fees.
Using a vehicle to secure a loan
So, if you’re unemployed – and your credit history is against you – how do you get access to the funds you need to tide you over until your next job?
One solution is to use a car, truck, bakkie or any other fully paid-up vehicle to secure a loan. With this type of lending model, you’re borrowing money backed by an asset.
As a result, your credit history and score are immaterial.
What’s more, you don’t have to be gainfully employed. You do have to demonstrate you have the ability to pay back the borrowed money.
Vehicle-backed loans can be a financial lifeline.
Having said that, it’s important to differentiate between the so-called pawn-and-drive schemes and the asset-based loans offered by accredited short-term loan providers.
Red Flags associated with ‘pawn-and-drive’ schemes
Although the pawn-and-drive option may seem like a no-brainer – you have full-use of your car throughout the loan term, after all – there are several red flags to consider, including:
- the vehicle’s ownership has to be signed over to the lender
- you’ll be expected to pay exorbitantly high interest rates, fees and penalties
- once you’ve paid back the loan, you may have to “buy” back your car
- the scheme is not recognised or regulated by the National Credit Regulator (NCR).
Consider a short-term vehicle-backed loan by Pawn My Car
Instead of borrowing money from unregulated and illegal pawn-and-drive providers, consider a vehicle-backed loan by Pawn My Car.
We offer a loan amount commensurate with the appraised value of the vehicle and the interest rates charged are fully compliant with the National Credit Act.
Although we do hold your car as collateral and store it in a secure lockdown facility for the duration of the loan term, we never take ownership.
Once you’ve paid back the money, you’re free to drive the car away. There are no hidden fees, no early settlement penalties and Pawn My Car is registered with the Financial Services Board and regulated by the NCR.