South African banks do not often approve short-term property loans because the loan payback time of less than a year is not lucrative for the bank. In addition, a consumer’s risk profile is carefully scrutinised when applying for a long or short-term loan, and many times consumers who are facing retirement are declined access to a loan, due to their age profile. This is according to Gary Palmer, CEO of Paragon Lending Solutions, a non-bank asset-backed lender.
Palmer says that people over the age of 65 are considered undesirable candidates to grant loans to. “In South Africa it is the policy of the banks that if the applicant is over the age of 65 then they can’t qualify for a loan, as banks fear that they are a high risk applicants and will struggle to pay back loans.”
He further points to a common scenario in which many South Africans are finding themselves: “People who try to sell their real estate while trying to find another property to purchase, 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 take 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, that 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 loans 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,” he concludes.