Any individual that has taken a loan in South Africa will have a credit score attached to his identity. The credit score is a marker that helps lenders evaluate potential borrowers in terms of their risk profiles i.e. the individual’s ability to pay back loans on time.
When an individual starts missing his monthly payments, it leads to loan defaults which, in turn, have an adverse effect on his credit score. A poor credit does not only mean that the individual would be unable to open new credit accounts but also results in his reputation falling drastically.
A good example of this would be when a person’s poor credit score prevents him from being hired with a good employer, because some employers in South Africa check their potential employees’ credit scores in order to judge whether they are responsible or not.
In essence, what this means is that a poor credit score is one of the worst things to have in modern day society. In such situations, the poor credit needs to be repaired. This is only possible by the person not missing out on any more payments and, preferably, even paying more than the monthly payments to quickly recoup the lost time.
Personal loans can help a person achieve this, especially if he does not have enough money to keep up with monthly payments towards the existing loan. As soon as the individual takes advantage of a personal loan and starts paying off his previous loan deficits on time, his credit score would start improving, even if it takes time to reflect in the credit report.
Furthermore, if a person is using personal loans to pay back his existing debt then it is likely that over time the interest rates attached to the personal loans would also start dropping, owing to familiarity with the borrower and the improvement in the credit score.
There are different types of personal loans that a person can use to rebuild his credit. These include the secured personal loans and the unsecured personal loans. As is obvious, secured personal loans require collateral to be provided by the borrower while unsecured personal loans do not even require this.
Moreover, in the majority of cases, the repayment schedule on personal loans is extremely accommodating for the borrower. In other words, personal loans tend to be for a short period of time, which means that they are paid back in a few months’ time.