Can You Get A Personal Loan In A Tough Economy?

Mar 28, 2024 | Money

It’s becoming clear that interest rate hikes, food price increases, and generally tough economic times in South Africa are making it harder than ever for people to make it through the month. This dilemma has put an intense financial strain on many households, making it more common for people to seek out solutions that will help them bridge the financial gap.  

This includes personal loans, which provides financing in the short-term (for emergencies, medical bills, or for that last bit of plumbing so that you can flush the loos again), and then pay off in smaller amounts later. 

Problematically, it can be difficult to get a personal loan when the economy is struggling as lenders become stricter about who they lend money to. The key is to make sure that you become an attractive applicant who is likely to get approved. 

If you’re feeling financially stretched and want to explore how to successfully get a personal loan during a tough economy, then these tips are for you.  

Calculate What You Need 

It might seem better to get a loan for more than you need, you know, just in case something else crops up… but actually by applying for a bigger amount you could either end up with monthly repayments you can’t afford or not getting the loan at all.  

Use an online calculator, like our Personal Loan Calculator and our Loan Repayment Calculator, to work out the amount you can borrow based on what you can afford to pay back each month. This way, you’ll apply for a realistic and affordable loan amount, which isn’t just good for you. It also increases your chances of being approved, because lenders use similar calculations to determine your suitability for the loan amount you’re applying for. If they pick up that you’re requesting a higher amount than you can afford, you create a bad impression with your lender and are likely to be turned down. 

Improve Your Credit Score 

A person’s credit score plays a large role in determining how likely they are to get a loan, because it indicates whether or not you’re going to make your repayments.  

It’s easy enough to check your score, just get a Free Credit Report for a review of your score, a list of creditors, your payment track record, overall balance, and more. Using this information, you can see what needs to be addressed so that your credit score is healthy and more attractive to lenders. 

Keep in mind that improving your credit score is not a quick fix and it could take time to get into a healthy range. Thankfully, it works in your favour to take the time to create long-term healthy credit habits as opposed to quick fixes. 

Here are some ways you can up your credit score: 

  • Pay your bills on time so there are no delinquent payments and collections on your record. 
  • Open a cheque or current account instead of using just a savings account (these don’t build a credit record). 
  • Don’t bring your debt down to zero and put pressure on yourself, but start making consistent payments to reduce your debts. 

Let Your Bank Statement Do The Talking 

This seems a bit odd, especially in the digital age, but personal loans can be quite personal. When it comes to applying for this loan, you need to communicate with your lender, and in this regard, we would argue that your bank statement is the type of communication you need to use when it comes to building a relationship with a lender. This is true even if that lender is not your bank.  

You see, your bank statements tell a story of how steady your income is and how you handle your money. It gives lenders insights into who you are and whether or not you’re a good candidate for a personal loan. 

If You’re Turned Down, Ask Why 

While most personal loan applications are online, there’s usually still a person on the other end of the line making the decision on whether to grant you the loan or not. So, yes you do have to use your credit score and bank statements to prove on paper that you can afford the loan and that you’ll be on time with payments in the future. But you can also call the lender and talk to them.  

This is especially true if a lender declines your application. We strongly urge you to ask them under what circumstances they will approve your application. It could be that the amount you’re requesting is too high, or that your score is just a few points off from being ideal. Maybe it will come down to offering to extend or shorten the loan term. 

You won’t know unless you ask.   

Find The Best Personal Loan Provider 

It’s quite logical to apply for a personal loan through your current bank, however your bank isn’t the only option. You should also consider other banks and online loan providers. You could even try a credit union or a peer-to-peer lending website. Although, you should know that you might have to make your request in person with a credit union, or need to have a credit score in the high 500s or low 600s to qualify for a peer-to-peer lender loan. 

Whichever type of lender you apply through, just make sure that the institution is reputable by reading consumer reviews and even consulting the Financial Services Board (FSB). 

Ultimately, what you’re aiming to do is get a personal loan with the best interest rate, favourable repayments, and a reasonable repayment timeframe, from a lender you can trust.  

Feeling Informed? 

Times are tough and, in some instances, a personal loan can be the most suitable answer. We hope that this advice will help you get the right loan for your circumstances, but don’t forget that in addition to this, we also have our Personal Loan Calculator that you can use to work out the most affordable loan amount. Considering a personal loan? Make sure you compare personal loan offerings through AA Money.

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