Shakespeare wrote, “Neither a borrower or lender be; for loans often lose both themselves and friends.” And he had the right of it. It would be difficult to convince anyone that loans were fun things that people simply did because they could. Of course, when you remember that Nigeria is a country where strange things happen this theory loses credence. For most of us loans are a terrifying last resort; the get out of jail free card reserved for when you need more than you can realistically save without descending to poverty; the final prayer when your planned expenses exceed that which friends, family or fools could realistically come up with. Once you get to this point, you’ll need to think carefully. A bad loan or a loan that’s not right for you, could be financial suicide, so here are some of the things you’ll need to consider before you get in bed with a financial institution.
image courtesy: nappy.coDo you really need a loan?
Some things that seem necessary may not be given second thought, and even though your need appears urgent there may be a way to get around it. One important question to ask is if you need the money and if you need it right now. Debt can be a prison, and financial institutions can be more dangerous than an army.
What’s out there?
A loan is a little bit like dating, you don’t pick the first one that comes along just because they’re there. You’ll need to shop about a bit before you weed out the serial killers. In Nigeria, this is a bit difficult because loan aggregators, like Money Supermarket don’t really exist here. If you’re going the banking route you’ll probably need to take meetings at all the banks to find out which offers the best deal before you choose. This is why the idea of leapfrogging the infrastructural inadequacies that Lagos brings is brilliant. With a platform like FINT, you won’t need to leave your computer before you learn what rates are available to you. There’s no need to brave Lagos traffic to take meetings of any sort. You upload your take the risk assesment test, upload your documents and the lenders decide.
What kind of loan do you need exactly?
Most financial institutions offer a variety of options that could apply to you, but that doesn’t mean that they’re best. For example, there’s a tier 2 bank in Nigeria that offers an overdraft for 6 months. Every month, customers have no other obligation but to pay 5% of the amount they borrowed as interest. However, on the sixth month, they must pay whatever’s outstanding plus the 5% in interest. This is a system that clearly won’t work for everyone. There are loans that need collateral, and there are those that don’t. And there are requirements that say the sort of account you must have to get a loan. For most payday loans (the loans you get when you really can’t stretch your salary any further) and overdrafts, you may not need any collateral but you’ll need a salary account. On FINT, there are no requirements for collateral, and you won’t need to get a different bank account to get access to credit.
What’s the interest rate?
Banks typically don’t charge interest by the month but by the year. However the interest rate may not be set in stone. When you look at the terms and conditions don’t be surprised if you see a provision that allows the rate to be increased when the bank decides the market conditions demand it. This is a good time to remember the theory that says prices are downwards sticky. The financial institution you’re indebted to is far more likely to raise rates than they are to drop them. On FINT, your interest rate is your interest rate. You can plan better knowing that whatever happens to the economy, or whatever the Central Bank of Nigeria does, the interest rate you’re given in the beginning is the interest rate you’ll be paying at the end.
The Terms and Conditions
When you get an offer letter which includes the terms and conditions, there’s typically another document with Other Terms and Conditions. Don’t ignore this. You’ll need to go through them line by line, as they more often than not tell you what the lengths the institution will go to for their risk.
In case of a default don’t go MIA
Defaults can and do happen to anyone. For example, let’s say you default because you got laid off. It’s a familiar situation that most people can understand especially when the economy is bad. Whatever it is keep the line of communication open. It isn’t exactly the best time to go for a holiday in a Peruvian village with no phone signal or internet access. Go back to them and cut a new deal. This will keep them from taking you to court or seizing your property as quickly as they might have otherwise. Although it’s probably worth mentioning at this juncture,FINT also requires all borrowers take an insurance to guard against loss of life, job and permanent disability.
Financial institutions are not charities
It would be lovely if every company in the business of credit gave away money without sparing a thought for their bottom line, but this isn’t the case. It should go without saying that they’re more interested in their bottomline than they are with your welfare. Don’t trust them blindly.