There are many reasons why someone may need a loan – to start a small business, to make improvements to their home, to pay for education, or even just to cover water and electricity for the month.

There are numerous options to choose from in South Africa, depending on what you need the loan for. Some are heavily regulated to ensure your rights are protected, but not all of them are so structured,with many people operating outside the law.

If you're thinking of taking out a loan, here are some of the ways that other South Africans do it.

Informal lenders

These are people who offer informal loans, often at extremely high interest rates. They are not regulated by the law and because of this, may hurt their clients' financial situations rather than help them. In South Africa, informal lenders are also known as mashonisas. The paperwork involved in taking out a legal loan can be daunting to some, which is one of the reasons why mashonisas are so appealing: there's no lengthy administration. You simply borrow the money and hand in your ID or bank card as surety. On the surface, it may seem harmless, but because they are unregulated, they may lend money to someone who can't actually afford to repay the loan.

Microlenders

These kinds of moneylenders loan out small amounts of money, sometimes as low as R500. There are a number of these companies in South Africa, and many of them now specialise in helping people in poorer communities start microbusinesses. As such, many of them offer business advice and even help clients set up their businesses.

The downside to this is that microloans are often used as payday loans. People borrow money that sees them through their month-end debit orders and financial obligations and repay it when they receive their next wages.

Pawnbrokers

Some lenders will take gold, jewelry, electronics, and other valuables as surety. They will evaluate how much your items are worth and lend you an amount based on that. They keep the items safe and give you the loan. The risk with this is, if you don't pay the money back within a certain period of time, the pawnbroker will sell your valuables to recoup their money.

Personal loans

Financial service providers are bound by strict regulations when providing personal loans to people. The interest rate they can charge is limited and they do thorough credit checks to make sure that their clients can repay their loans. The amount you can borrow varies from between R5,000 and R150,000 and the maximum repayment term is six years. These days, you can apply for a personal loan online and send through your documents via email, getting an answer in a short period of time with little hassle.

Debt counselling: a final word

There is no doubt that a loan can go a long way depending on the situation; many people need financial help at some point in their lives. When they pay back a loan on time, there's no harm done. However, if a person is regularly borrowing money just to get by every month, it's a sign there's a problem.

Fortunately, there is professional help available. Debt counselling services can help you or a loved one get out of the cycle of debt. Get information on debt counselling and the help you need from hippo.co.za.

Prices quoted are correct at the time of publishing this article. The information in this article is provided for informational purposes only and should not be construed as financial, legal, or medical advice.