Rose got an opportunity to work for one of the leading International NGOs and after 6 months of her probation, she gets this rare call from a bank.
This same bank had signed a memorandum with her organization and would give its staff loans.
Earning only 1,000,000 monthly, Rose was assured by the bank sales staff that they would lend her over 30m to be paid in 5 years through monthly instalments.
With all the excitement, she accepted the offer and in just a month’s time, her account was credited.
Now later questions popped up in Rose’s mind on what to use this huge sum and It actually took her over 18 months for her to withdraw all this money even with the fact that the bank was deducting its monthly interest.
she struggled with this loan and she regretted why she had taken it in the first place.
As a finance coach, I have had several of my clients like Rose reach out to me struggling with huge sums of money got from loan without knowledge on how to invest.
One of the key principles to achieving financial freedom is to avoid unnecessary debt and below are 4 best practices you should know before taking that loan.
1. LOAN PURPOSE:
Before taking any loan, ask yourself do I need this loan and if so, how much. There should be a definite plan on how to spend it. Always remember the higher the amount borrowed, the more interest accrued. If you take a loan for a purpose let us say to buy land, don’t shift the goal post to buying a car or funding your consumption.
2.COST- BENEFIT ANALYSIS.
Before taking any loan. Compute how much interest will you pay vis-à-vis the returns on investment where you will deploy the loan. The interest can either be fixed or changing depending. Always look out for loans with relatively low interest. Some banks have better deals done money lenders.
3.SECURITY.
Read and get clarity on loan terms especially on the security and repayment terms. Ask question like what if I lose my job right now and can’t meet my monthly instalments, will the bank be patient with me or they have a right to my assets? Make sure this is in the loan agreement.
4. PREPAYMENT PERIOD.
Think through and get clarity on whether you will be paying weekly, fortnightly or monthly? Do you plan to pay it off sooner than the term? These key factors will help you choose the right loan to ensure that you avoid any unnecessary costs.
For people that are employed, instead of taking a loan to fund your increasing expenditure, how about you think of creating an alternative source of income instead.
Above all, only take a loan when you need it.
Remember:
“Debt is like any other trap, easy enough to get into, but hard enough to get out of.” Henry Wheeler Shaw
Yours in service
Coach Samuel Ibanda
Did you find value in this article? If so, I would love to connect with you, please feel free to reach out to the contacts below:
WhatsApp: +256703803255
Email: coachsamuel@samuelibanda.com
