Taking loans are easy and enticing, paying back is most often unpleasant and difficult

About a year ago, a friend and colleague got a new job with a microfinance bank and chatted me up with loan offers. Of course, he knew I was a civil servant and had some security as regards my annual income.

Loans are monies borrowed with the expectation of being paid back, usually within a stipulated time. Loans can come from friends, relatives, spouses, organizations or work environments, the government, online applications, banks, etc. The purpose of taking loans can range from personal needs to the need for investment in businesses.

Many civil servants in Nigeria have engaged loan services to build houses, buy cars, and even start businesses. This usually gives a false impression to unsuspecting individuals as regards the sources of funds for middle- or lower-class income earners.

I will attempt to address this in a simplified manner.

NEEDS and WANTS

On some occasions, we have needs and wants to meet with limited resources. Some of these needs and wants come as emergencies, making us desirous of means (including loans) to achieve our desires. A couple of times, these needs destabilize us, and some of them are actually things we can do without. Medical emergencies are examples of needs that may pass for the option of loans, while the purchase of assets and liabilities, in particular, can be forgone. At this juncture, the decision to opt for a loan or not is reached.

Most loans obtained are not for the purpose of generating funds which leaves us with more debts to clear.

SOURCING FOR FUNDS

This is the stage where we decide to pursue our needs and wants. We usually make mental calculations as regards the possible sources of funds, which may include gifts, income, grants, and loans. Taking out a loan is usually the last option, as people are often wary of the challenges in obtaining the loans or the uneasiness attached to having to explain to third parties what the loan is intended for.

AVAILABLE LOAN OPTIONS

When the decision is made to take a loan, usually after exhausting other options for sourcing funds, we begin to screen for available options, such as loans from friends and family, which are often regarded as "soft loans," while the extremes are from loan apps, cooperative societies, and banks.

Soft loans are usually safer, less cumbersome, and have a flexible repayment plan. These loans are usually interest-free. The disadvantage is that you may need to disclose your intent to those willing to offer you a loan.

The loan apps are quite numerous now and pop up with options for you as advertisements every now and then. Most people have had terrible experiences with online loan apps, which range from compromise of the borrower's data to defamatory publicity when the loans are not paid back on time. Taking these loans is usually attractive, as the vendors portray them as easy to get. The steps are usually simple, and you do not have to visit any of their physical branches. Just a few clicks, and you will have the money credited to your account. These loan applications are mostly approved, for example, in Nigeria, by the Central Bank of Nigeria (CBN). The interest rates are usually huge and may range from 0.4% to 20%. Most of them do not require collateral. The loans offered are usually based on the information provided and the frequency of loans obtained from them.

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Cooperative societies and Bank loans are usually more stringent than other loan options. The bank is a business entity and would do all it takes to make profits. The interest rates are usually high, and there is always the need for documentation, the provision of sureties, and time-specific sureties. Some other banks, however, have made taking loans easier by having loan options in their apps, such as salary advances and quick credit. The latter often arrives within minutes of the application. Most often, guarantors or collateral are provided.

PAYING BACK LOANS

This is an aspect that most borrowers do not plan well for. Your payment plan should influence how much loan you request. Paying back loans should be time-specific, and when there is no such agreement, there is a tendency to have a dispute between both parties. Loans from institutions like banks usually have legal documents in their custody that the borrower may be too lazy or careless to read (this is dangerous especially to the borrower).

Many times, we appreciate and enjoy taking the loans, but when it comes to paying them back, it becomes a burden and some people have lamented the stress and weight of paying back loans as grevious. It is bad to take a loan you cannot afford to payback. Loan repayment should have dates that will help the borrower work towards paying back.

Some people are fond of repaying loans in bits or installments, which is often unappreciated by the receiver. This often leaves the borrower with unaccounted expenses.

Taking out loans is a lifesaver, unfortunately most of us have poor repayment mechanisms. This oftentimes brings embarrassment, and worse of, incurring more loans.

We need to be convinced if taking that loan is essential and non-negotiable. A vital repayment plan should accompany the loans we take and this should not cripple our daily living and take-home.

Thank you for reading. I would love to have your comments and contributions.

Posted Using LeoFinance Alpha