A loan is an amount of money borrowed for a set period at agreed repayment terms. The terms include; loan charges, duration, security, account activity, among others.

Charges like interest rates are greatly affected by the borrower’s credit score, credit history, income source, loan size, length of term, repayment frequency, and security provided. These factors reflect the risk and cost of the lender/financial institution.

A good loan helps you seize business or investment opportunities because you get a lump sum and repay in flexible instalments over time.

There are factors to consider when sourcing for a credit facility. They include;

Rate of return

It is advisable to take credit when the projected rate of return from investment outweighs the charges. Therefore, there is a need to have all loan charges disclosed during the application to help you make an informed decision. Likewise, do thorough research on the business or investment you intend to undertake.

Repayment terms

Consider your income sources and take a loan that allows you flexibility. For instance, if you are in horticultural and poultry farming, an ideal facility should allow you to repay your loan in bullet (one-off) from farm produce sales. 

Long-term loans end up tying a person to that debt for a long time, limiting the ability to exploit other opportunities. 

One of the crucial things to consider before taking up a loan is the interest rate. The benefits sought may end up being outweighed by the cost of the debt.

Loan purpose

Be clear on loan purpose and do your research to see that the intended purpose will give you enough income to service the loan.

Avoid taking a loan to meet recurring financial needs like school fees, food, clothing, medical bills, and motor vehicle service, among others. 

Save regularly to meet these needs as they arise. Kindly visit our website for savings options that help you plan better for these needs. https://amicacs.co.ke/savings/futures-savings-account/

Opt to take a medical cover for you and your loved ones instead of taking a loan over the same. 

Quick loans

With the mushrooming of mobile lending apps, you can now access loans within seconds through your device. The loans are enticing given the flexibility of application and therefore encourage impulse buying. However, most borrowers are unaware that these loans are high priced to cater to the lender’s risk exposure.

When you get used to using a credit card, you consume money before you earn it. So, unless someone is disciplined, a credit card might end up ruining your finances. 

Shylocks give quick credit at very high-interest rates. But, unfortunately, most borrowers get stuck because their income sources cannot fully service the loans and interest.

Except for extreme cases, it is good to avoid quick loans, and in case you take one, repay it within the shortest time possible. The penalty charges for default are very punitive and could cripple your finances.

Your savings

It is advisable to service part of your venture/project using your savings to reduce the borrowed amount and weight of servicing the facility. Not to mention that you save on interest charges since your savings attract no cost.

Plan and stick to your plan. 

Never take a loan whose purpose you’ve not thought through. If your project requires you to borrow, then have a clear plan on how you will pay off the loan. Look at the interest rates, the pricing, and the duration. It will help you make a sound decision on whether to take a loan or not. 

The problem is that borrowing money to pay back more borrowed money that will oblige you in the future to borrow even more money doesn’t sound kosher. Because it isn’t. John Podhoretz

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