Personal loan vs. credit card. What do I need?

Whether you need to make some home improvements, you want to buy a new car, you have school fees to pay or something breaks around the house, there will more than likely be a time where you need some extra cash to cover your expenses. With so many different credit opportunities, it can be difficult to decide which option is the best for you. Below we outline the main differences between a personal loan and a credit card so that you can make an informed decision about what you need.

 

What is a personal loan?

Think of a personal loan as a lump sum of money. You take out a loan of a specific value and you need to pay back that amount in pre-defined installments and in an agreed upon amount of time. This can also be called installment credit. The total amount that you need to pay back is reduced every time you make a repayment.

 

And what about a credit card?

With a credit card, you have a credit limit. You can borrow money at any time, up to your credit limit. Your credit card repayment is known as revolving credit. With revolving credit, the credit limit does not change once you make a payment. You can borrow up to a certain amount, because of this flexibility, you can borrow lower amounts with higher interest rates in comparison to installment credit. You can learn more about credit repayments here.

 

When should I use a credit card and when should I use a personal loan?

A credit card is best when you’re needing to make smaller, more everyday purchases. Your credit card is generally a lower borrowing amount than a loan. For everyday purchases, it will be more comfortable to repay these smaller amounts.

A personal loan can be used to help you afford a larger ticket item and help you realise some of your dreams. Think about things such as: buying a car, renovating your home, financing your child’s education or putting the money towards a special occasion.

Remember your credit behaviour

How you use the credit that you have is vitally important. Your payment behaviour and the way you manage your credit will affect whether you have access to credit in the future. If you’re trying to build up a good credit history, your on-time payments and credit utilization are key factors. Paying your credit accounts on time is the biggest aspects that will positively influence your credit score. You should aim to only use 30% of your available credit at any given time for a good credit utilization rating. For example, if you have a credit card with a limit of R10 000, then you should only use R3 000 and then make sure that you repay this amount.

 

As you can see, there are key differences between a credit card and a personal loan and the reasons for using each of them. Are you looking for a personal loan or a credit card? You can enquire about both here:

 

 

You hold the power when you know your credit score

Knowing your credit score puts you in charge. Why, you might ask? Your credit score is not only something that credit providers use to gauge your credit history, but it is also a way for you to see where you are performing well and where you can improve with regards to credit. How can you make changes and improve your credit usage if you don’t know where you’re going wrong?

 

How can I use my credit score to my advantage?

Based on your credit score, credit providers could use your score to determine how much interest you should pay. This is because if you have a lower credit score, you may have to pay higher interest in order to mitigate some of the risk for the credit provider. If you know your credit score too, you have a lot more bargaining power if you have a good credit score. For example, if you would like to buy a new car and you know that you have a good credit score, you have a good chance of getting a better interest rate. This is because if you have a high credit score, you have shown credit providers that you have a history of managing credit responsibly.

What if my credit score was not as high as I would like it to be?

That is alright too. In the credit world, knowledge is power and because you know your credit score now, you have the power to change it. Building a solid credit history can take time and quite a lot of patience. It’s important that you make a concerted effort to manage your credit responsibly. If your credit score wasn’t as high as you’d like, here are ways that you can manage your credit and raise your score:

Don’t close your accounts

Credit scoring systems reward you for having a long credit history. This doesn’t mean that you should have lots of cards, use them sporadically and then close the accounts. The average age of your accounts is a factor that the credit scoring models look at. Therefore, if you close your accounts, you’ll decrease the average age of ALL your credit accounts.

Be on time with your credit card payments

This is the most important factor in maintaining a good credit history. With a Virgin Money credit card, you can set an automatic payment for an amount that you select. This will help to make sure that you’re not accidentally missing a payment.

Don’t have too many credit accounts at once

You shouldn’t apply for too many credit accounts in quick succession. Whenever you apply for a new line of credit, there is a hard enquiry done on your credit report and this will negatively affect your credit score.

Setting reminders for payments and paying your bills more than once a month

Set reminders on your phone for when you need to make a payment on one of your accounts.  Plus, if you are able Plus, if you can, pay your bills every two weeks, rather than just once a month. Your credit score will improve, as you are lowering your credit utilization.

Make sure you check your credit score and credit report regularly

You are entitled to one free credit report per year. If you stick to the above tricks on how to manage credit, when you come back for another credit check in a year’s time, you’re bound to see an improvement. Checking your credit report is also a good way for you to ensure that all the information on your credit report is correct. If it isn’t, you can log a dispute with Compuscan by calling them on 0861 51 41 31 or sending an email to consumercare@compuscan.co.za.

3 ways to help manage the cost of education

The rising cost of education is a constant worry for most families, as it is becoming harder to send your kids to a good school and university to get them the education you know they deserve. Budgeting and saving for your children’s education is no small task and as most parents realise, the costs don’t just stop at the tuition. When it comes to saving for schooling, every cent counts so here are a few ways that you can budget and save for education costs.

Consider a personal loan

A personal loan can help you cover the costs of either your own or your children’s education. With Virgin Money, you can get a personal loan between R80 000 and R250 000. With this money you could cover tuition and all the additional costs that come with getting an education. You can apply for one here.

Reduce the cost of course material

Text books and course material can be a significant cost when going to school and university. Something to consider is to first see if the campus library has the textbooks and then you would be able to use them when you need them. If this is not an option, course material is often available online so you can access this from the campus computers. As a last resort, you could look to buy the textbooks second-hand. This would be significantly cheaper than buying new books.

Set up a savings account and leave that money alone

You could investigate setting up different savings accounts for education costs, such as a unit trust or a tax-free investment. Before you do this, you should speak to a financial advisor so that you make the best choice for your own financial situation. The key is that once you set up this account, you need to make sure that you aren’t dipping into it for personal use.

Don’t let a special occasion set you back financially

Whether it’s a holiday, a birthday, a wedding or even an anniversary, everyone has a special occasion that they are saving up for. The trick is to make sure that a special occasion doesn’t break the bank, because this could take something that is supposed to be celebration and turn it into a nightmare.

 

Gifting for a holiday or special occasion

When it comes to saving for the holidays, this is a tricky one, as it does depend on how many people you’re needing to host and get gifts for. If you feel you need to buy a gift for everyone’s birthday or for the festive season, try to set a Rand amount for each person so that you know beforehand how much you need to save. A great way to save is to get a group of people together and chip in for a more expensive gift for someone. It will be cheaper for you and the person is getting one great gift out of it, instead of a few smaller presents.

Saving up for your big day

If you’re planning on having a big wedding, then you need to make sure that you’re not putting yourself in debt. It’s quite easy to get carried away with all the bits and bobs that you can have to make your special day, but there are a few things you should do so that you stay within your means:

1. Set a budget from the start
You will need to be realistic and thorough about this budget. Don’t forget to put in the little things that can add up. If you know how much you’re willing to spend, you’ll be very conscious about going over that budget.

2. Set yourself a timeline
If you know how long you need to be saving for, you will be able to figure out how much you need to set aside each month. It’s also a good idea to set up a calendar for when you need to pay each of your vendors or service providers. You’ll then be able to see which months you’ll be spending more towards your wedding.

3. Look for the sales and special
Seasonality is a factor that can impact the cost of a wedding. If you have a wedding in winter or autumn, you will probably pay less than if you have the wedding in summer. You should also look for sales where you could buy some of the decor or additional things you need – think Black Friday. You can also find ways to cut costs. You could try sending email invitations, instead of letters in the post or try some other cost saving tactics.

Saving up for a trip

So, you want to get out of town, but everywhere seems out of reach. Fortunately, there are ways that you can travel affordably and if you are wanting to spend a little more, there are small things that you can do to save for your trip.

1. Create a trip that’s affordable
If you want to go overseas, you don’t need to stay in fancy places to have a good time. There are very affordable and fun backpackers or hostels you can stay in. You should also wait for flight sales to come out and be a bit flexible with your travel dates and times so that you can get the cheapest flight.

2. Create a savings account
Every month deposit a bit of your salary into your savings account. You will be able to track how much you’re earning, and it won’t be as easy to just take money out and spend it.

3. Sell some of your stuff
You can make quite a lot of money if you sell some of your unwanted items. You may be able to sell your furniture, books or any clothing you haven’t warn. Although it might not be enough to cover your trip, it could make a big difference towards your spending money for when you’re on your trip.

Top 5 tips when searching for a new car

Searching for a new car can be confusing, especially if you haven’t decided what you want. With all the “good deals” and “special rates” that are flying around, it’s hard to know what you should be looking for and will you even know if you find it? While we can’t tell you what to get, we can give you a few tips on what you should look out for when searching for your new car.

 

Newer is not always better

Have you considered buying a second-hand car rather than buying a new one? Everyone loves that new car small and all the gadgets that come with it, but if you’re wanting to get a good car without breaking the bank, second-hand could be the way to go. Depending on what you’re looking for, a used car is invariably cheaper, and you’ll be paying lower insurance premiums.

It is more than just a test drive

If you are looking second-hand, a test drive should not just be about jumping in the driver’s seat and speeding off to see if you like the way the it drives. You need to be methodical and check every single aspect of the car. Turn it on and let it sit like this whilst you check out the car. Listen to the noise the engine makes and check that all the lights and indicators work. Only once you have checked everything stationary, you should take it for a test drive and again check everything from the gears to the brakes and how it handles speed and inclines. When it comes to second-hand you need to be methodical and make sure that it works the way it’s supposed to.

Make a list of your essential requirements

When you’re searching, you need to have a very clear idea of what you need that car to be for you. There’s no point in buying a two-seat sports car if you need a car to travel with the family. You can start by asking yourself some of the following questions:

1. What do I need it for?
2. Is this car just for my short daily commute or am I going to use it for longer journeys?
3. Do I want a petrol or diesel car?
4. Does it need to be spacious? Do I need to be able to transport lots of things?
5. Is an electric or eco-friendly car an option?

Once you have an idea of what you need, you’ll be able to refine your search.

Understand the costs

Another checklist that you should consider making is a checklist which looks at the cost of a car, over-and-above the upfront cost. If you’ve taken out a personal loan to pay for the car, you’ll need to factor this in. You then need to think about all your ongoing costs, such as: petrol, insurance, services, the cost of parking and tolls and any other unforeseen costs, which can come up at any time. Once you have created this spreadsheet, factoring in any of the cars that you are interested in purchasing, you’ll be able to see what you can afford to own.

Insure before you drive

You need to make sure that you have insurance before you drive your new car out of the dealership. Once you are the legal owner you should have it insured, even before you’ve picked it up. If anything happens to it once you’ve bought it, it’s your responsibility. Imagine you’re carefully driving home from the dealership and you get to a stop street and someone bashes into the back of you. Rather make sure your car is covered from the start.

What to look for when you’re house hunting, so you don’t break the bank

Searching for a new home can be stressful, especially when you consider the amount of time it takes, the financial pressure and all the little bits and bobs that you know you haven’t even considered yet. It can take time to find that special place for you and your family, but have you stopped to consider some of your options so that you’re not spending more than you can afford? Well no fear because we have complied a list of things to think about whilst you’re searching for your new place.

 

The house vs. the apartment debate

You may feel hung up on the idea of buying a house because it’s “your space” and you can do with it what you like, plus in South Africa it always seems like the cost of an apartment in comparison to what you could get from a house isn’t justifiable. However, have you considered the benefits that you get from an apartment once the deal is done? Firstly, if something needs fixing in the building, you generally won’t have to pay for fixing it. This is the same with general maintenance on the communal areas and gardens. If you buy a home, all those costs are yours and yours alone. Also consider the cost of security. You can spend a fortune securing your home, but in an apartment, a lot of the security features are already included and taken care of.

Location, location, location

Wherever you end up living, you’re going to have to travel to work and if you have kids, you need to think about where they’re at school too. The daily commute can be a costly one, especially when you factor in the rising cost of petrol. When you’re looking for a new home it may be worth finding something a bit closer to work, even if it is slightly more expensive. You need to weigh up the cost of travel and the cost of buying a place. Try to estimate how long you intend on living somewhere and see whether it is worth finding something a bit closer to work.

Bigger is not always better

When you’re house-hunting, the bigger, better and brighter homes are not always the best homes for your wallet. You need to remember that you’re going to be paying for all the extra space and the nicer features that come with the home. In the initial stages of your search you should try to look at homes at the lower end of your budget and see what you find. You may be pleasantly surprised by what you see and you’re more likely to find something that ticks all the boxes. If you start looking at homes at the top of your budget, you’ll likely be tempted by all the extras, but these could mean you’re biting off more than you can chew.

You do not need to fill your home in one go

You may be tempted to fill your home with new decor and furnishings, but you can take your time with this and do things smartly. Think second-hand furniture and markets for your odd bits and pieces. You could even try your hand at some DIY and create the furniture you want. This will help you to fill some of the emptiness if you have bought a bigger home, but you’ll be able to do it in a cost-effective way. You also don’t need to rush into filling your home. Rather save up for some of the better-quality items that you want, rather than spending a large amount in one go and potentially hurting your credit score.

Why do I have a high number of enquiries on my credit report?

An enquiry, or a credit check, is when someone looks up your borrowing history. Remember that whenever you open a new credit account, there may be an enquiry done and this will affect your credit score. Even if you are just shopping around for different credit opportunities, but never end up going with any of them, a hard enquiry could still be done.

 

Why does an enquiry negatively affect my credit score?

When you make multiple credit applications within a short space of time, this will affect your credit score. The reason is that every time you apply for a new line of credit, a hard enquiry is done. Several hard enquiries can give the impression that you are desperate for credit opportunities or that you are having problems managing existing debt.

This may not be the case, but unfortunately it makes you a riskier person to lend to. Once you have access to credit, you should try to limit the number of credit accounts that you have and rather make the ones that you have, work for you. Make sure that you make your payments on time and your credit score will improve in no time!

What if I am not financially strained, but I would like to take out credit to better myself?

There are certainly good reasons for taking out credit, such as: you want to finance yours or your children’s education, you need help buying a home for your growing family or you need to grow your dream business.

However, taking out multiple forms of credit at once can be rather dangerous. You may argue that you want to get more money, or even use a new loan to pay off an existing loan, but you need to remember that you will need to pay all of them on time, with interest, fees and principal. It is very easy to Get bogged down by your multiple loan repayments.

If you need to take out a personal loan, you can apply for one here, but then make sure that you pay it off, instead of applying for multiple personal loans. Let your good payment history on the loan help to boost your credit score.

What do I do if I don’t have any mature credit accounts?

Building a solid credit history takes time and ironically you need a credit history to get credit. Although it does take time, if you manage your credit responsibly, your credit score will ultimately get better.

Unfortunately, if the credit bureaus do not have enough information to paint a picture about your payment history, your credit report will be thin, and your score could reflect this. The main thing is that you need to be patient and methodical in your handling of your credit so here are some tips to building a solid credit history foundation.

 

Do not close your credit accounts

Believe it or not, but credit scoring systems can penalise you for closing credit accounts. This is because they don’t want to see you taking out multiple credit cards, using them for a while and then closing them to take out a new one. The best thing to do is to stick to one or two credit cards and use them responsibly. By closing your credit accounts, you decrease the average age of ALL your credit accounts and the credit rating models will penalise you for this.

Be on time with your credit payments

One of the most effective ways of creating and maintaining a good credit history is to ensure that you make your credit card payments on time. With a Virgin Money credit card, you can set an automatic payment for an amount that you select. This will help to make sure that you’re not accidentally missing a payment.

Do not have too many credit accounts at once

Don’t apply for too many credit accounts once you have access to credit. Whenever you apply for a new line of credit, there is a hard enquiry done on your credit report and this will negatively affect your credit score.

Setting reminders for your payments and paying your bills more than once a month

Write down your payment deadlines and set reminders on your phone so that you are consistently paying your bills on time. Plus, if you can, pay your bills every two weeks, rather than just once a month. Your credit score will improve, as you are lowering your credit utilization.

Make sure you check your credit score and credit report regularly

Virgin Money has a free, handy tool that will get you a copy of your credit score and your credit report. Reviewing your credit report is a good way to check that all the information is correct, and you will be able to see where you have room for improvement in terms of your credit utilization.

What do I do if I have a high number of recently opened accounts?

A high number of recently opened accounts can temporarily affect your credit score. This could be because there may have been hard enquiries done on your credit score. As a result, a high number of recently opened accounts could indicate financial strain.

 

Why were hard enquiries done?

Whenever you apply for a new line of credit, credit providers need to gather some information on your credit history to see whether you would be a safe bet to loan money to. They gather this information from your credit report and every time this is done, there is a hard enquiry. A hard enquiry can hurt your credit score a bit. If you have multiple new accounts, each one of these would have come with a hard enquiry, which will affect your score further. Fortunately, the negative effect of a hard enquiry does not last long and if you manage your new credit responsibly, your credit score will bounce back in no time.

How could new accounts indicate financial strain

If you are applying for multiple credit accounts at a specific time, this could indicate that you are potentially taking on more credit than you can handle. This will generate the hard enquiries on your credit report. If you do have a high number of recently opened accounts, there are a few key things that you need to remember:

  1. Make sure that you pay all your bills on time and by the amount that was agreed upon with the credit provider. A good payment history is the most important factor when determining your credit score.
  2. Use less than 30% of your credit utilization ratio.
  3. You should only apply for more credit in the future if you can afford to do so.

Is it a bad thing if I have a high number of credit accounts?

Unfortunately, there is no definitive answer to this. You could in theory have quite a lot of credit accounts; however, the more you have, the harder it becomes to responsibly manage all of them.

At the end of the day, how you manage your credit and your payment history are the most important factors in developing a credit score. If you’re able to handle a good mix of credit types, this will positively influence your score, but if you open too many accounts at once and don’t make your payments on time, this will negatively affect your score.

 

Is it good to have a mix of credit?

Credit providers like to see people who can responsibly handle a variety of credit types. “Types of credit” is possibly one of the smallest components that are taken into consideration when determining a credit score. However, the ability to responsibly manage different credit will aid your score. If you have a solid history of making on time payments across a variety of credit types, credit providers are likely to view you as a safe bet to loan money to in the future. On the other hand, having a high number of just one credit type can indicate a higher risk.

Are there credit accounts that are high risk?

When you apply for a new line of credit, a hard enquiry is done by the potential credit provider. This is so that they can gauge whether you are a safe bet to loan money to. If you are applying for multiple credit accounts, this will lower your credit score, as it will appear as through you are in desperate need of credit. The timing of when you apply for different credit will also be a factor in determining your credit score.

Does it matter if I have a high number of certain credit accounts?

Yes, this is a factor when determining your credit score. Having a high number of one type of credit account shows a lack of diversity in your credit mix. If you also open multiple new credit accounts in quick succession, it may indicate that you are possibly biting off more that you can chew.

If I have a good credit mix, is it possible to have too many credit accounts?

Taking out credit is a responsibility and should only be done if you are able to responsibly manage the repayments. Although there is no hard line on what “too much credit” looks like, the most important thing when it comes to credit is being able to pay all your bills on time. You should not add to your credit mix if it is going to stretch you and credit should only be taken out if it is going to better your life, not make it harder.