Have you noticed how popular lending companies are becoming these days? Even the banks who are notorious for lending money out to people who don’t need it are now offering payday loan services to salary account holders. While it may be tempting to immediately jump at these offers, there are several questions to ask yourself before you go after any of these options.
Why do I need the money?
We understand that getting your income to cover your expenses can be tough. However, before you take a loan you need to consider other options available to finance your desire. Can you save towards that? Can you go for a more affordable option? Can you put off the expenditure till a later time?
We have found the general rule of thumb to be that if you answered yes to any of the questions listed above, borrowing is not the right answer for you. However, it is also important to consider the nature of the expense. Borrowing is a good option if the good or service purchased can pay back the loan or exceeds the lifetime of the loan.
For instance, borrowing to take a course that will increase your capacity to earn more money is great. Borrowing to start a business that will give you good returns or to purchase assets that will improve your business is very smart. Borrowing to buy a house that will ultimately save you significant amounts in rent is perfect. On the other hand, borrowing to go on a holiday, buy gadgets or settle monthly expenses may not be advisable.
How much can I afford to pay back?
If you take a loan, you must pay it back. You should, therefore, consider if your income less expenses can support the repayment. Say your total income is N100,000 every month. Let’s assume that by the time you settle food, transportation, light, family/religious commitments, debts to family and friends, and a little entertainment you’re left with N7,000, taking a loan that requires N20,000 monthly repayment is a bad idea.
How credit-worthy am I?
This is something that everyone needs to hear. Whether you’re taking a loan from a financial institution or family and friends, people must trust that you will pay back the loan.
While the more formal financial institutions require collateral – that is something they can take from you if you do not pay back the loan – the more contemporary loan providers consider the following factors: a verified source of income; a verified home or office address and contact number; strong character references; good credit history – as in have you taken and paid back previous loans; no existing loans; and other factors unique to the loan provider.
The more you can do to show that you will pay back the loan as at when due, the better your chances of securing the loan.
You can take a FREE Risk Assessment when you register as a borrower on FINT, this gives you a credit rating and FINT Score.
What are the terms of the loan?
This is a critical thing to consider. Many loan providers offer loans with interest rates as low as 2%. That’s great but what about hidden charges? Are there any processing fees? Are there insurance fees to take care of the risk of you defaulting? Are there penalties on if you make a late payment? Are there even charges for if you pay back earlier than expected? These are all questions you should ask the provider,
More so, you should also consider how much you will be paying off in total. For example, and for ease of calculation, say you have the following offers:
Option A: N100,000 loan at 2% for 2 years
Option B: N100,000 loan at 2% for 3 years
With option A, you will pay N4,254.03 per month but a total of N102,096.62. With option B, you will pay N8,469.37 monthly but a total of N101,632.44. Although you are paying less monthly with option A, option B is better because you pay less in total and you’ll be rid of the debt a full year earlier. Ensure you know what you need to know.
What options do you have?
When you are considering taking a loan, do not accept the first offer that looks great to you. Shop around for options and ensure you have the best offer that meets your needs. A flexible loan provider that can work around your need like FINT is a great option. FINT works with clients to boost that credit score and structures loans for you that match your capacity without overwhelming or, worse still, hidden fees. The biggest selling point we believe is that we match you with creditors that are ready to match your requirements.
We’ll leave you with this: get the idea out of your head that borrowing is bad. If you borrow from the right partners, for the right reasons and in line with your financial capacity, it will be one of the best financial decisions you can make.