Loans: What do the money experts say?

What do the money experts say?

1. AVOID PENALTY INTEREST ON YOUR LOAN AND MINIMISE TRANSACTION FEES

Failing to pay off your regular loan installment by the due date, even by a day, attracts penalty interest. This interest is charged off the installment that was due that day.

This can be very expensive especially if you are the type to pay back 5 or 10 days late every time for say, three years. This is avoidable. If you are salaried, ensure that you receive your salary on the same date or earlier than the date your loan is due, and make a standing order to pay it off.

In addition, every time you go to withdraw money from the bank, ATM or Mpesa, there is a small fee that you pay per transaction. In banks, this is usually an average of Sh150. You can avoid paying too much on these fees by making fewer transactions per period.

Patrick Wameyo, founder and lead consultant - Financial Academy & Technologies

2. BE SMART ABOUT YOUR LOANS

Don’t borrow based on knowing that you might be getting some money in the future. You should plan for your debt based on the stream of income that you are already getting every month.

Use income that you can see, not that which you can’t see. You can only indulge in your fancies with the money left over after you have invested, paid back your debt and spent what you need to on a monthly basis. Resist the peer pressure of having to buy things when you know you will have to borrow to buy.

Shiv Arora, financial controller and head of private equity and real estate, Cytonn Investments

3. PLUG THE DRAIN

If you own a business and find yourself in debt, don’t borrow more until you diagnose the problem. It is always prudent to determine whether a business is solvent or insolvent. If it is solvent, and you are struggling with debt, you have several options.

1. First, you can seek investors and sell them shares in the business. The investor will offset the debt plus get the business to profitable levels.
2. You may also want to list your company in the stocks exchange.
3. You could also go ahead and take up a loan – but only if you are certain that you will be able to recoup the money and pay it back.

4. DON’T BORROW TO SPEND THE MONEY ON DOMESTIC NEEDS.

The money you use for food and similar needs should come from working – not borrowing.

Bharat Thakrar is the founder and CEO OF WPP Scangroup

5. KNOW WHEN TO LET GO

If struggling with debt, you should consider letting go of some ‘assets’ on loan, so as to free some money and lessen your burden. The first asset that I ever attempted to buy was a house at Villa Franca, Imara Daima, at age 26. Sadly, I was unable to manage the repayment and lost everything.

Joanne Mwangi is the founder of Professional Marketing Service (PMS)

6. BEFORE QUITTING JOB FOR ENTREPRENUERSHIP

Considering leaving employment? Shore up capital or take that loan before they give up their paycheck.

And if you have any loans to pay back, experts advise aspiring entrepreneurs that because they may not start making money as soon as expected, to consider keeping aside at least 6 months of loan repayments from their salary.