By Damalie Nankya Mubiru
There are a number of useful guidance points that will help any customer looking for a loan facility:
Don’t borrow more than you can repay. This is the first rule of smart borrowing and it’s what our elders have been telling us from time to time: don’t live beyond your means. Take a loan that you can easily repay.
Keep tenure as short as possible to avoid any unforeseen changes in the economy, Job or cash flows which might impact your ability to repay the loan. Ensure timely and regular repayments to avoid bad credit profile which may hinder your chances of taking a loan for other needs in the future.
Don’t borrow to splurge or speculate for example invest in fixed deposits and bonds
These investments will never match the interest you pay on loans and are too volatile. If the market declines, you will not only suffer losses but will be strapped with a delinquent loan. “Don’t borrow to buy a luxury car.”
Borrow from a licensed lender as there are laws and regulations that protect the borrower from any form of exploitation.
Take insurance with all loans. It is best to take insurance cover as well. Buy a term plan of the same amount to ensure that your family is not saddled with unaffordable debt should anything happen to you. The lender will take over the asset (house or car) if your dependents are unable to pay the monthly commitments.
Understand the terms and conditions of the loan. Some loan documents are lengthy, therefore it’s important to understand the terms and conditions of the loan before accepting the offer. This will allow you to avoid unpleasant surprises. Take advice from a friend or a lawyer for nay terms you don’t understand and “don’t be signature happy”.
Have minimal loans at a time. If you have too many loans running, it’s a good idea to consolidate your debts into one omnibus loan to avoid multiple commitments yet in most cases, they might be serviced by the same cash flow pool or salary.
Keep your spouse or family in the know about the loan. Before you take a loan, discuss it with your family. This is important because the repayment will impact the overall finances of the entire household. In many instances, if you are married spousal consent may be required.
The writer is the Head of Lending Products, Stanbic Uganda