Why you need to think twice before applying for a loan
MANAGING YOUR MONEY
By LOLITA BUNDE |
2 months ago
There comes a time in your life when you will need a loan to help you accomplish some of your plans or aid an emergency.
And currently with the pandemic looming, sales dwindling, people losing jobs and the economy tougher than ever, most people are resorting to loans to cover their expenses.
According to recent reports, approximately 14 million Kenyans have been listed with the credit reference bureau for defaulting to pay their loans.
This further leaves Kenyans with limited access to credit facilities for newer business ventures, pushing them into the open arms of loan sharks and other unscrupulous lenders.
That being said, if you find yourself in a tight corner and must take a loan, here are some things you should know before committing:
- The purpose of the loan
Before applying for a loan think of the type of loan you want and what you want do with it. You need to ask yourself if the intended purpose is worthy of taking a loan.
You also need to know that there are different types of loans in the market and you should only go for the one that best suits your situation.
Furthermore, the kind of place you decide to take your loan also matters. A loan comes with an interest, do not go for a small loan at a big place where you will end up being ripped off by paying more money than you bargained for. Always consult financial experts first before taking a loan.
- Current financial situation
This is the biggest factor when it comes to applying for a loan. Can you manage to sustain your living expenses and still pay the loan?
When you understand your monthly and yearly budgets, it becomes easy for you to know how much you can manage to spare in loan repayments every month and how much you can actually borrow.
When you blindly take a loan without considering your financial status, you are likely to drive yourself into a deeper financial pit.
- Credit history
This is especially to those who are not good at clearing their debts and loans, if you have a bad credit history you are likely not to get a loan from any bank or get the exact amount you want.
Banks tend to be very cautious with the people they lend money to. In order to cover interest rates, most banks are anxious about lending for risk of default.
Before anything else, check your acknowledgment score in order to know the likely prospects of getting the loan approved. If you have a bad reputation, consider clearing your name first.
- Loan term
This is a crucial thing to ask your bank or lender before committing to take a loan. Some banks have fixed rates on loans taken and you will end up paying more than you bargained for.
Some lenders will allow you to take a shorter time to pay your loan if they think you can handle it, however it is not an option they will willingly and openly tell you about.
Always ensure to ask your lender whether they allow people to pay back loans earlier or later, and how this is likely to affect the interests as well as monthly instalments.
- Penalty charges
Failing to repay a loan on time is a reality we all face. Things happen and sometimes you may be unable to pay your loan as agreed.
In case you are not able to pay your dues on time, there is normally a very weighty penalty indicted on your credit account. Always ensure you know how much it is and agree to these terms.
Also before signing on a loan be wary of hidden charges, make sure you read the fine print before finalizing a deal. There might be charges you are not aware of, especially on things like mortgages.
Tip: Steer clear of loans that have no written agreements.
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