Being physically fit often entails some uncomfortable stretching. Whether it’s stretching your limits to exceed your personal best, or stretching your legs out before going on a run… It can be a little painful. This is also true when it comes to being financially fit. Stretching your budget out so that you can meet your regular financial commitments and also those occasional, bigger expenses that you did not budget for, can be equally painful.
When it comes to these unplanned expenses, sometimes the only remedy is to take out a short-term loan and, if it’s an emergency, applying to an unsecured lender (which does not require you to sign over any assets that they will seize if you default on your repayments) is going to be faster than applying to a bank.
Most unsecured lenders have websites and apps that make it incredibly quick and easy to see whether you qualify for a loan – although it may seem like you are forced to spend extra time filling out two applications. This is not the case. The first application, which is often just a couple of questions, is called a ‘loan quotation’ (or a pre-qualification assessment; PQA) and it benefits you in several ways.
Firstly, these questions are a quick way of checking whether you qualify to borrow the amount you are asking for. If your loan application meets the lender’s requirements and shows that you are a trustworthy borrower, the information you have already provided helps to speed the process up. At this point, the lender may also provide a ballpark figure of the loan amount you qualify for, as well as the interest rate and payment terms that they can offer.
Secondly, your loan quotation helps ensure that you are protected from the effects of reckless lending. In the past, reckless lenders granted loans to people who could not afford them, but this is now prevented by the National Credit Act, which ensures that credit providers only extend loans to those who are able to manage the repayments. This may mean that the amount a lender is prepared to loan you is less than what you have applied for. But, this is not necessarily a bad thing in the long term.
In the unfortunate event that your application does not meet the lender’s requirements, doing the loan quotation saves you from spending extra time going through the full application process.
While the loan amount and payment terms provided after your initial loan quotation do not constitute final approval, this information enables you to understand your borrowing capacity before you commit. It could be a warning that you might be committing to debt that you cannot afford to repay, no matter how hard you stretch your budget every month.
* Seyuba the head of people at digital financial services platform, FinChoice.
PERSONAL FINANCE