Concepts on personal loans.

Personal loan has been used by many to achieve great feats and it as also choked up many. Most people take personal loans to handle financial obligations that savings alone cannot handle in the short run.

How do I mean? let’s look at this example: if one of my personal finance target for the year is to get a landed property, that will cost me a million if I pay now, but the might increase at the end of the year and also I may not get a good location if I am to wait till the end of the year and I have just two hundred thousand in savings, which means I have a shortfall of eight hundred thousand and if I am to save on a monthly basis, I will need a minimum of Sixty Seven thousand monthly for the next twelve month and by that time the value of the land might have moved higher, so to hedge this I get a personal loan to secure the land and I will then pay back, over the period, this example simplifies the advantage of time value of money with loans. As beautiful as the example looks so many times when you do not calculate well it might end up choking you. As a personal finance coach I advise that before you take a personal loan, try to factor the repayment such that it does not choke other essential financial obligations.

Even though I am no averse to loans, I will like to say that the following points are worth pondering upon before you take that personal loan.

Because Personal loans are easier to access this day as we have so many financial institutions that are willing to lend the monies out, some are willing to disburse within 24 hours. But I will like to stress it again that you need to read the terms and condition well, people complain of hidden charges, but the sad truth is you signed it. So before you go ahead with the loan, double check the agreement and have an understanding of it, so never take a loan in a hurry, the account officer might want to put you under pressure and may want appear as though doing you a big favour please understand that you are also doing the person a favour, and the rule of the game should always be WIN-WIN.

Never take a loan to prove a point, I will keep stressing the fact that you do not need to impress anyone. One basic principle of mastering your personal finance is having the understanding that it is all about YOU! As a Personal Finance coach, I will not support getting a loan to do parties. 

Ensure that the purpose for which you are getting the loan outweighs, the interest you are going to pay back, even if the interest is increased by 200 or 300 basis points.

Once you have the disbursement, finance the project for which the loan is meant for as soon as possible, I have seen people borrow other people at no interest from a personal loan. I am not saying you should not do charity or help others, all I am saying is personal loans are meant to be personal. Also I have seen people going to celebrate loans in restaurants and bars, spending from the borrowed funds. This is total waste, please avoid this error.

Important facts about personal loans:

In most cases, personal loans are Unsecured but we have few exemptions such as if the personal loan is used to purchase an asset with the involvement of the financial institution. Say buying a brand new car with the help of the Bank. That is when we can consider it as a secured form of loan.

Personal Loan as a specified repayment tenor or period. Usually between six months and three years, remember from our last post that the longer the tenor the longer your interest.

It normally attracts interest which is usually flexible in this part of the world but fixed in the western world, you can see our last post on interest rate.

Ensure you have the best interest rate as the different financial institution offers different interest rates so shop around, all it will cost you is domiciliation of salary or income with the financial institution. And you know the beauty of it, they are all willing to have you on board.

With personal loan, amount accessible depends on a number of factors such as your income level, and credit score which evaluates if you are able to pay back and if you have had loans in the past that turned doubtful or even bad, that is why I tell people to avoid skipping monthly repayment, more will be seen with the advent of the BVN (Bank Verification Number) in Nigeria.

Let me close this post with this simple advice, if you have to take a personal loan, do it with your eyes and ears open, i.e. Ask question from start to finish.

I remain your friend and Personal Finance Coach Babatunde Ayorinde, follow me on twitter @pistis03,

And if you like to engage us to speak in your program or for adverts send us mail at babat09@gmail.com.

Thanks for reading, invite you Family, Friends and Foes to read the blog, as we move ahead to our financial freedom.