Before you sign up for a loan, it makes sense to think about whether you really need to borrow money. At times like this – with economic uncertainty and rising bills – many people are now choosing to pay back money they’ve already borrowed rather than borrow more.
There are some very important questions you need to answer before you borrow money. You should ask yourself if:
Scenario A – Sisana is a teacher who travels to work by bus each day. She gets a better job at a new school paying a higher salary, but she can’t travel there on public transport. She wants to buy a car but doesn’t have enough savings to cover the cost so she needs to borrow some money. This is good borrowing as Sisana’s job is paying her more money. She will recoup more than the cost of the car, including the money she borrowed. Of course, it depends on the kind of loan she gets and how much it costs relative to her increased pay.
Scenario B – Thulani wants to trade in his old car for a new one. He thinks he’ll need to spend E80 000 to get a reasonable car. He doesn’t use his car for work but likes the freedom that having a car gives him. He can get E35 000 for his old car and he can afford to pay back some money every month if he borrows the rest. It will take him five years to repay the loan and he’ll have paid almost double the cost of the car. Thulani needs to think very carefully about taking out this loan as he’ll end up paying making loan repayments for the next five years. If his situation were to change in that time (say, his working hours were reduced or he lost his job), he might not be able to keep up the repayments.
Once you’ve decided a loan is the best way to go, you should also make sure you choose the right type of credit or loan for your situation otherwise, you could find yourself paying more than you need to. Shop around and compare deals, looking at:
If you have a poor credit rating then you might be tempted to use a micro-lender or shylock, especially if you have few credit options. However, these are expensive and should be avoided at all costs.
To get credit, you must fill out and submit an application. Information sourced from the Financial Services Regulatory Authority brochure on Credit, indicates that while specific approval guidelines vary from lender to lender, many base them on the following;
Character: this refers to how responsible you are in paying your debts. Most creditors judge this by looking at your credit report. Your credit report tracks your credit activity, what accounts you have, your payment history etc
Capacity: this refers to the ability to repay what you borrow. Creditors also consider your current debt obligations
Capital: these are assets that you have. The creditor wants to know if you have savings or other assets that you can use to make your payments if you lose your job or experience something unexpected that could lead to you being unable to honour your payments
Collateral: these are assets, property or any other asset that a borrower offers as a way for the lender to secure the loan
HOW TO GET MORE LOANS INFORMATION
Should you wish to know more about applying for a personal or business loan and rights associated with this, you can contact the Financial Services Regulatory Authority ((FSRA) or the Centre for Financial Inclusion (CFI). The CFI conducts Business and Personal Finance Clinics targeting MSMEs and individuals. The purpose of these clinics is to nurture and provide hands-on instruction and guidance on running small enterprises as well as managing personal finances. The CFI utilizes the Business Clinics Framework to identify entrepreneurs that are ready for finance and link the with the financial institutions.