MONEY MATTERS

 Today on money matters, we will be talking about managing credit/loans.

Why do people take loans?

Over the years I’ve discovered that people take loans for various reasons

1.       For consumption

2.       For investment

The distinguishing factor between this two is that One can generate profit and the other does not. A loan taken for investment purposes can generate profits while a loan taken for consumption have no profits attached to it.

Practical Examples of taking loans for consumption or investment:

“Taking a loan to get an expensive phone just for buying sake, not that the phone generates income, and getting a loan to buy a phone for business purposes” They are the same commodities, but one can yield profits.

“Taking a loan to further your education abroad or paying your children’s school fees, this credit is purely an investment. The credit was taken to add value to yourself so that you can improve your earning abilities in the future”

Six (6) Things to Consider before taking a Credit.

1.       Ascertain for sure your level of income – You should know what you are worth and have a preplanned payback scheme before going into any loan agreement. Don’t just make assumptions about it, be sure.

2.       Be sure about the purpose of the credit – “if the purpose of a thing is not known, abuse is inevitable” Don’t just take a loan because it is available, have a definite reason for taking it. This purpose might be for consumption or investment, it doesn’t matter, just know the purpose in other not to abuse it.

3.       Know the amount of credit you need – Most persons tend to take more than they need, probably because the source is open for more, and some persons take lower than they need. There must be a balance so that the intentions or purpose of taking the loan won’t be defeated.

4.       Forecast a payment Plan – Before you enter into a loan agreement, determine how much you will be paying back, make sure the figures are right and you will be able to meet them. I usually advise that you make a budget of your income and expenditure and integrate your loan payment into this forecast so that you will be able to know the required changes that will allow you to accommodate the repayment schedule 

5.       Don’t take a loan that takes more than 30% of your income - If you are a Salary earner, I strongly advise you not to take a loan that will cost you more than 30% of your income while paying back. You have other costs to attend to. When you push all income to a repayment plan, other areas of living will eventually suffer. Assuming you have a family, you have children, feeding, car maintenance and other necessities that are constant, you need to attend to them notwithstanding that you have a loan to repay . Hence, don’t get a loan that its repayment plan will take more than 30% of your income.

6.       Make sure you are fully aware of the Cost  – Don’t be naïve, negotiate, be fully aware of what you are going into. Ask for all hidden charges, ask for every detail. Don’t be too fast to take the credit, get all details right before signing any loan agreement. that fact that it looks good on paper does not mean that it is actually good. be careful not to fall into the trap of a good salesman who is trying to meet his own target. So, be aware of your interest cost, administration cost, commitment cost and so on. Make a simulation of these cost's and determine if you are able to meet the commitment attached.

In incase you help with you any financing solutions, professional advice or any other technical advice regarding loans, please contact us as Adekail Professional service (www.adekail.com) or send a mail to Chinaza@adekail.com   we will be glad to help.