IS GETTING A BANK LOAN SELF ENTRAPMENT?

THERE are varying opinions on matters relating to personal financial decisions and habits. This is inclusive of opinions around whether or not to obtain a credit facility from a formal financial institution.

Not too long ago, one of the social media posts in relation to this caught my attention “If you want to experience modern slavery, get a loan from the commercial banks.”

With this post followed comments such as “loan ibaba, the last time I got one, left me traumatised-I told myself never again”. Another interesting comment was “Banks are just thieves mwe! In fact, what is called a savings account is simply a scandal,”

the comment read in part. Another comment read, “I have been paying a four-year loan term, but it is now getting into five to six years.”

It is sentiments such as these that makes it clear that there is an evident information gap as regards matters relating to credit facilities provided by commercial banks.

Therefore, in today’s edition, we will begin to unpack some of the myths and misconceptions surrounding credit facilities (loans) provided by commercial banks.

In an ideal world, everybody would have enough money to meet their needs. In reality however, many have little option but to borrow in order to meet both their real goals.

For commercial banks, the existing gap between reality and aspirations is a tremendous opportunity, and many banks will cease such an opportunity to provide their clientele, offers for loan facilities to meet these goals.

With the advent of technology, digital financial solutions, coupled with other innovations, the turn-around time in which banks respond to applications for loan facilities has tremendously reduced, making access to credit easier than was the case sometime back.

While technology has altered the way loans are disbursed, the cannons of prudent borrowing remain unchanged. This entails that only borrow when you need the money.

As a way of introduction, below are some of the simple rules to follow the next time you contemplate obtaining a credit facility from a commercial bank:

1. Do Not Borrow More Than You Can Repay: This is the first rule of smart borrowing-only get a loan facility which you can easily pay back.

2. Keep the Tenure as Short as Possible: the shorter the tenure, the shorter the interest accrued.

3. Do Not Borrow to Buy What You Do Not Need

4. Do Not Borrow to Purchase Wasting Assets

5. Develop a Savings Habit: This will come in handy on a rainy day.

6. Ensure Timely and Regular Repayment: in this case, discipline comes in handy, especially when it comes to repayment. Delayed payments or unpaid dues have the potential to negatively impact on your credit profile, which could affect your future relationships with other formal financial institutions.

7. Take Time to Understand the Fine Print: Never be in a hurry to append your signature for a credit facility without having read through and fully understood the terms and conditions of the loan facility. Where unsure, always ask for more information on the terms and conditions, and if possible, request for a little more time before signing off the document. Where possible, get advice of a financial advisor to debunk all the clauses of the loan facility that you may be unfamiliar with prior to signing the agreement.

A lot of sentiments raised on loan facilities from commercial banks are usually shrouded in the information gap that exists to help the customer fully understand their obligations as beneficiaries of credit facilities.

It is advisable that customers with bank accounts take keen interest in their account statements provided by their commercial banks, whether they have a credit facility with the bank. Taking time to read through bank statements will enable the customer have an upper hand in information as regards the performance of their credit facility. This habit will also enable the customer seek engagement with the bank as regards what other available options exist for the repayment of their credit facility, especially in relation to the repayment tenure.

It is also important for customers to understand that the interest rate on most salary backed loans are linked to the Monetary Policy Rate (MPR) as guided by the Central Bank. This entails that any shift in the MPR, whether upward or downward adjustments, will have a direct bearing on the interest rates of existing credit facilities obtained from commercial banks.

The benefits of downward adjustments in the MPR will entail a reduction in the interest rates of credit facilities linked to the MPR, and the opposite is true for upward adjustments as well.

We have always emphasised and will continue to emphasise that where there are upward adjustments in lending rates owing to adjustments in the MPR, customers are at liberty to take the proactive role and engage with their respective commercial banks for possible adjustments in the tenure of repayment in order to allow the customer continue to serve their loan repayment with minimum undue pressure.

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