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Why banks don't give short-term loans

18 Jul 2014

South African banks do not often approve short-term property loans because the loan payback time of less than a year is not lucrative. In addition, when applying for a long- or short-term loan, a consumer’s risk profile is carefully scrutinised and many times consumers who are facing retirement are declined access to a loan, due to their age profile. 

There are financial institutions that will approve short-term loans, should candidates be frustrated by banks’ financial processes. Similarly, candidates who are facing retirement and are seen as high risk due to their age profile, stand a much better chance of being granted a loan by these institutions as opposed to banks.

This is according to Gary Palmer, CEO of Paragon Lending Solutions, who says people over the age of 65 are considered undesirable candidates to grant loans to. He says in South Africa, the banks’ policy is that if the applicant is over the age of 65 then they can’t qualify for a loan, as banks fear that they are high risk applicants and will struggle to pay back the loan. 

Palmer points to a common scenario that many South Africans find themselves in: people who try to sell their real estate while trying to find another property to buy may require a short-term loan to secure the new property. However, they will more than likely not be granted a short-term loan by the bank. 

Palmer explains that this is because the managing and the application process of short-term loans takes up a lot of time and effort in terms of credit checks and admin for a loan that’s only going to be on the books for less than a year, and it will therefore not be in the bank’s best interests to grant the person this loan.  He says, however, many people prefer to take out a short-term loan rather than a 20 year loan in order to secure a property quickly, despite this not being granted often. 

“There are financial institutions that will approve short-term loans, should candidates be frustrated by banks’ financial processes. Similarly, candidates who are facing retirement and are seen as high risk due to their age profile, stand a much better chance of being granted a loan by these institutions as opposed to banks.”

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