How Do Payday Loans Work in South Africa?

South Africa, How Do Payday Loans Work?

There are times in life when unexpected expenses crop up or income becomes unsteady and you may find that that you don’t have the money to pay for these. If you do not have a fully funded emergency fund, then you will need to take some type of loan to bridge this financial gap. South African Payday loans are an option, but they do come at a high price.

workings of payday loans in south africa

Payday loans are small short term loans that do have a high interest associated with them. Payday loans should be considered carefully because they can lead to debt that is hard to get out of.

How do Payday Loans Work?

If you are halfway through the month, but find you need some extra cash to pay for an unexpected expense like car repairs then you need to find a way to get the money to pay because without your car for instance, you won’t be able to get to work, which could risk your job.

With a payday loan, you are able to go to a payday loan lender where they will ask you to write a post-dated check for the amount of the loan plus fees. You are also able to apply for a payday loan online, which will require you to give the lender permission to take the money you owe from your bank account on the due date.

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You will usually have just a few weeks or until your next paycheck to pay back the loan.

The fee that they charge will include interest, which does make payday loans one of the most expensive loans to get. The interest rate for payday loans is higher than other types of loans because it is a short term loan and you are essentially paying for the privilege of having instant money when you need it for a short amount of time.

In order to take a payday loan, you will need to prove that you have a regular and stable income, this is so the payday lender can be sure you are able to pay the loan back.

However, many people find that they are not able to pay back a payday loan or have to take another one to cover the costs for the month once you have paid back the payday loan.

When your payday loan is due, you are able to pay your debt or can roll that debt into a new debt, which will add to the money that you owe, this can lead to a debt spiral.

You might be wondering if payday loans affect your credit…

The Effects of Payday Loans on Your Credit

When you apply for a payday loan whether it is in person or online, you will not be subjected to a credit check. As long as you pay the loan back on time, a payday loan will not appear on your credit report. This also means that a payday loan will not help your credit score or help in building your credit.

However, if you are not able to pay your payday loan then it could affect your credit. If the debt you owe a payday loan lender is taken to a debt collection agency, then the debt collector could report this to the credit reporting agencies. This will show as a negative entry on your credit report and will lower your credit score.

The Advantages and Disadvantages of Payday Loans

Payday loans can be useful in times of emergency and they do have advantages, but they also have disadvantages.


  • In a financial emergency, payday loans are a fast source of cash.
  • You do not have to go through a credit check to get a payday loan.
  • You could save money by using a payday loan to cover overdrafts, credit card fees and bounced checks.
  • People with bad credit are able to qualify for a payday loan.


  • The interest and fees associated with payday loans are high.
  • You are only able to borrow small amounts.
  • They could hurt your credit score.

Wait…there is more to know…

Top Reasons to Take a Payday Loan

If you have a stable South African job and a regular income, then you are able to take a payday loan. Here are the top reasons, people take SA payday loans.

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Avoiding Late Fees

Every month late fees can build up whether you are incurring late fees for unpaid credit card bills or overdue utilities. These late fees can sometimes cost more than the balance that you owe. A payday loan can be used to stop these late fees from occurring and will give you time to catch up on the money you owe.

No Credit Check Loans

Taking a loan at a traditional bank can be difficult because they have very strict qualification requirements. Payday loans are no credit check loans and your ability to take this loan is based on the income that you are earning. You are then able to get access to money that you need to pay debts before they affect your credit score to harshly.

Fast Approval

The process for applying for a payday loan is easy and often your payday loan will be approved within just a few hours. When you have a financial emergency, payday loans offer a way for you to get the money you need, when you need it.

Avoiding Eviction or Repossession

If you are overdue on car or rent payments, then it can lead to the repossession of the car or eviction from your home. These acts can occur quickly, but because you are able to get a payday loan quickly, you are able to avoid repossession or eviction. You are then able to use a payday loan to make car or rent payments on time.

South African Payday Loans Are Short Term Loans

Loans from banks usually require repayments over years and it can be stressful to take on such a long debt. Payday loans have a shorter term and are repaid by your next paycheck. You will then be able to take a loan and repay it quickly and not have the stress or take on the burden of a long debt.

You Don’t Need Collateral

As a borrower, you will not need to put up any collateral to secure the loan. A payday loan is secured against the fact you have a regular income.

Payday loans are useful and offer financial relief in times of emergency when you really need some extra money to tie you over, however, there are disadvantages. The major drawback is the high interest that is charged. You should then only take a payday loan if you are sure you are able to repay the loan on time, without it leading to other financial issues.