Revolving loans: how it works and what are the best options on the market

Revolving loans in South Africa offer flexibility and accessibility, ideal for managing fluctuating expenses

Por: WiredCabin Team em May 11, 2024

Main benefits of revolving loans

Revolving loans in South Africa offer a unique blend of flexibility and accessibility that can significantly benefit both individuals and businesses.

These loans allow borrowers to draw from a pre-approved amount of credit, repay it, and then borrow again, making them an ideal solution for managing fluctuating financial needs without the hassle of applying for a new loan each time.

Flexible access to funds

One of the primary advantages of revolving loans is the ability to access funds up to a set credit limit at any time without needing to reapply. This makes revolving loans particularly useful for covering unexpected expenses or taking advantage of timely investment opportunities.

Control over interest payments

Borrowers only pay interest on the amount they actually use, not the total available credit. This can lead to significant savings on interest payments compared to traditional loans where interest is charged on the full loan amount from the outset.

Improves cash flow for businesses

For businesses, revolving loans can be a vital tool for managing working capital. They provide a flexible funding source to cover operational costs like inventory purchases and payroll, ensuring that businesses can continue their operations smoothly without cash flow interruptions.

Potential to increase credit limit

Making timely payments and using a revolving loan responsibly can lead to an increase in the credit limit. Financial institutions may offer higher credit limits to borrowers who demonstrate good credit management, further enhancing their financial flexibility.

Convenient repayment options

Revolving loans typically offer flexible repayment terms, including the option to make minimum payments when cash flow is tight. This flexibility can be a significant advantage for managing personal and business finances effectively.

Builds credit score

Regularly using and repaying a revolving loan can help build or improve a borrower’s credit score. Responsible use of credit facilities is reported to credit bureaus and can positively affect credit ratings, making it easier to qualify for other forms of credit in the future.

Loan simulation

To simulate a revolving loan, imagine you’ve borrowed ZAR 20,000. You pay interest only on the amount you’ve used. If you use ZAR 5,000 in the first month, your interest is calculated on this amount.

As you repay the used portion, your available credit increases by the repaid amount, making it possible to borrow again up to the original ZAR 20,000 limit. Monthly repayments are flexible, often requiring only the interest plus a small portion of the principal.

Interest rates

If for instance, the APR is 12%, monthly interest on the ZAR 5,000 used from your ZAR 20,000 limit would be about ZAR 50 (assuming simple interest for illustration). This doesn’t account for compound interest or fees that might also apply. Your repayments would reduce the principal and interest, freeing up more credit to use.

Prerequisites to obtain a revolving loan

To apply for a revolving loan in South Africa, there are several prerequisites that applicants need to meet.

South african citizenship or permanent residency: Applicants need to be either South African citizens or permanent residents.
Valid identification: A green bar-coded South African ID book or a Smart ID card is required to verify the applicant’s identity.
Proof of income: Financial institutions may require proof of stable income, such as recent payslips or bank statements, to assess your ability to repay the loan.
Proof of residence: A recent document confirming your residential address, like a utility bill or a lease agreement, may be needed.
Bank account: Some banks, such as FNB, require you to have a personal cheque account with them to qualify for a revolving loan.
Age requirement: Applicants must typically be over 18 years old. The exact age requirement can vary between financial institutions.
Employment status: Being permanently employed or having a steady source of income is often a criterion. Specific income thresholds may also apply, ensuring that the applicant has the financial stability to make repayments.
Creditworthiness: Your credit history and score can be crucial factors.

Financial institutions offering revolving loans

In South Africa, major banks like Standard Bank, Absa, and FNB offer revolving loans, each with a long history of financial services.

Standard Bank, established in 1862, stands as one of Africa’s largest banks, offering a broad range of digital and traditional banking services.
Absa, known for its extensive retail and commercial banking services, has been a key player in the African banking industry for decades.
FNB, celebrated for its innovative digital banking solutions, has roots going back to 1838.

These institutions not only provide revolving loans but also a comprehensive array of financial products, showcasing their evolution into modern, customer-centric banks.

Best banks and financial institutions that offer revolving loans

In South Africa, several prominent banks offer revolving loans, providing customers with flexible credit solutions tailored to their needs. Among these, Standard Bank, Absa, and FNB stand out due to their extensive financial services and commitment to customer satisfaction.

Standard Bank, recognized for its widespread presence and long history in the financial sector, provides revolving loans up to R300,000. This institution emphasizes easy access to funds, quick approval processes, and the benefit of UCount Rewards to repay loans, presenting a user-friendly approach to managing finances.
Absa, another major player, offers a revolving credit facility that allows for borrowing amounts between R15,000 to R350,000. Their product is designed to give clients continuous access to funds without the need to reapply, featuring personalized interest rates and the assurance of a Credit Protection Plan. Absa stresses the importance of flexibility in repayment and the convenience of increasing the credit limit as needed.
FNB provides a revolving loan facility with features aimed at flexibility and convenience, including fixed monthly repayments and the option for clients to access funds as long as 15% of the loan has been repaid. They also highlight the additional benefit of optional Debt Protection and easy management of the loan amount through their banking app or internet banking.

Step by step to apply for the loan

Applying for a revolving loan in South Africa typically involves the following steps, based on the procedures outlined by major financial institutions like Standard Bank, Absa, and FNB:

Eligibility check: Ensure you meet the basic eligibility criteria such as being over 18 years old, having a stable income, and holding a valid South African ID or Smart card. Proof of residence and recent payslips or bank statements may also be required.
Choose your bank: Decide which bank’s revolving loan offer best suits your needs. Consider interest rates, loan limits, repayment terms, and any additional benefits or fees.
Online application:
Visit the chosen bank’s website and navigate to their revolving loan section. Use the online banking platform or the bank’s mobile app, where you will likely find an application form or a digital process to apply for the revolving loan.
Provide necessary documentation: Submit all required documents, which typically include your ID or Smart card, proof of income (payslips or bank statements), and proof of residence. Some banks may require additional documents depending on your employment status or if you’re self-employed.
Complete the application form: Fill out the loan application form, either online or in-person, providing all requested information accurately to avoid any delays.
Submit the application: Once you have filled out the form and attached all necessary documents, submit your application through the chosen method (online, via app, or in a branch).

Positives and negatives of the revolving loans

Pros:

Flexible access to funds anytime without reapplication;
Only pay interest on the amount used;
Good credit behavior can increase the credit limit;
Minimal monthly repayments based on borrowed amount;
Can improve credit score with responsible use.

Cons:

Higher interest rates compared to some other loan types;
Potential for high credit utilization to negatively impact credit scores;
Fees and charges can add up, increasing the cost;
Risk of accumulating debt due to ease of access to funds;
Variable interest rates can lead to unpredictable monthly payments.

Alternatives to revolving loans

In South Africa, besides revolving loans, financial institutions offer a variety of lending options. These include depository institutions like banks and credit unions that provide personal and business loans, mortgage loans, and vehicle financing. Contractual institutions such as insurance companies and pension funds offer products related to savings and retirement.

Lastly, investment institutions like investment banks and brokerage firms provide services in securities trading and investment management. Each type caters to different financial needs, from short-term borrowing to long-term investments and saving plans.

Revolving loans average rates and fees

Potential borrowers might encounter the following average rates and fees:

Interest rates: Variable, typically starting from 15% to 22.25% annually, depending on the lender and creditworthiness of the borrower.
Monthly service fees: These can vary but often there is a standard fee, for instance, R40 for some banks, and can be higher depending on the loan amount.
Initiation fees: A once-off fee that also varies with the loan amount; some banks charge up to R1,207.50 (VAT included).
Credit protection insurance may be mandatory, covering events like death, disability, or loss of income.

Customer service

For more information or to apply for a revolving loan, you can contact the mentioned institutions via their official websites or customer service lines:

Standard Bank: Visit Standard Bank’s website or call their customer service at 0860 123 000.
Absa: Access Absa’s official website or reach out to them at 0860 100 372 for assistance.
FNB: Go to FNB’s website or dial 087 575 0000 to speak with a customer service representative.

These contacts will provide direct access to detailed information about their revolving loan products and services.

Why choose revolving loans?

Choosing Revolving Loans offers flexibility and convenience, particularly appealing to individuals with varying financial needs. These loans can accommodate a range of credit histories, offering an opportunity for those with less-than-perfect credit to manage cash flow effectively.

Primarily, they’re suited for digitally savvy customers preferring online banking ease and those seeking a loan with a flexible repayment structure. This loan type is ideal for anyone needing immediate access to funds, from entry-level earners to those with higher incomes, emphasizing its adaptability to diverse financial situations.

In the evolving landscape of South African banking, revolving loans stand out for their flexibility and adaptability to diverse financial needs. Whether you’re navigating fluctuating income, managing unexpected expenses, or simply seeking a more fluid credit option, these loans offer a tailored solution.

With the convenience of digital banking and the potential for credit limit increases, revolving loans embody a modern approach to personal finance, making them a compelling choice for savvy consumers in search of both freedom and control over their financial future.