The ease with which banks and other micro finance institutions are disbursing easy loans is seeing many customers subscribing to loan products that offer flexible repayment terms.
Many are not, however, weighing the implications of rash decisions especially the terms tied to a loan package.
Short term loans disbursed by micro finance institutions are attracting high interest rates than what commercial outfits are charging for a similar amount.
And banks, as well as these micro-finance institutions, are liaising with mobile telephony companies to extend their tentacles to virtually anyone registered on a network.
As a result, many individuals are subsisting on loans virtually all the time and it is now the norm to clear one loan and immediately apply for another.
The flexibility of repayment methods further make these loans even more attractive and rob many of financial goals as salaries and wages go into servicing debts.
This in essence means individuals are caught up in debt traps almost all the time since new loans go into addressing any financial deficit.
According to personal finance expert Jason Maina, this obsession with loans, if unchecked, has potential to plunge an individual into financial ruin.
He says the person’s property can be possessed and auctioned or stiff penalties levied that see the individual paying more on the principal amount. He says being in debt is not a sign of progress but of bondage.
“You commit most of your money to clearing debts at the expense of other financial obligations and this is not a healthy practice,” he says.
With loans comes the very real risk of defaulting and Maina suggests paying ahead of time, like when they receive their salaries or wages, instead of waiting until the last day.
“Paying earlier is best since this means you will not commit the amount to other causes and end up defaulting. Doing this also improves your credit history,” he says.
Maina, however, believes that keeping out of debt is better since borrowing and repaying can become a cyclic pattern in an individual’s life.
He says a person should strive to live within their financial means to curb this tendency of borrowing and repaying and advises individuals to develop workable budgets that fit well with their income.
“Prioritise in order to check on spending. Some wants can outweigh needs and this will create a financial imbalance forcing the individual to borrow so as to bridge the deficit,” he says.
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Maina further cautions against impulse spending and notes potential pitfall areas as taking pleasure trips, frequenting entertainment joints or buying flashy but expensive wear that is only intended to impress others.
With discount offers extended almost in everyplace, there is danger of taking loans to buy that item one had longed for.
To curb the temptation of impulsive spending, he suggests one should be leaving their credit and debit cards at homes when going on an outing with friends.
With financial institutions having appointed agents in virtually every place, you may not know if you will end up making unnecessary withdrawals to give your friends a treat.
“It is advisable to carry enough loose cash with you but not your plastic cards all the time,” he says.
Maina also notes there are those who are not prudent in their financial management. They may manage well with little money but are poor with more. Such persons, he says, need to consult financial experts or agencies that can help them.