Important tips on getting credit and it’s due

Giving credit and its due

You want to start a business, purchase a brand new car, or buy that lovely Jewellery you saw yesterday-but you don’t have the money to pay for it. Should you leave it for when you can afford it, or get a line of credit? It all depends so on what you need the money for: is it an item that will appreciate (increase in (increase value over time) or depreciate?

The rule of thumb is: don’t borrow money for items that depreciate, as you will usually pay interest on the amount borrowed, and this means you generally end up paying more money than you initially borrowed. If, for example, you borrowed N2 million to buy a car and had to pay interest at 15% over four years, by the time you finished paying the loan, the car would have cost you N2,671,751. At the same time, the car would have depreciated by about 45%, and if you had to sell it, you would only get about NI 100 000 for the car.

How smart was that decision? Not very -unless the pleasure and/or utility derived from driving the car was worth the money you lost.

Though credit can be a lifesaver, millions of people around the world have found that it can turn into a foe that leads you into the shackles of debt. Credit organization entices you with promises of low-interest rates, convenience, and minimum monthly payments. However, what is probably written in the small print is that the interest accumulates daily, which can lead you to pay as much as double the price of the purchase! 

If you must get a form of loan or credit, shop around for the one that will best suit your needs by following these tips:

• Compare interest rates.
• Identify what additional fees need to be paid.
• Determine what the penalty charges would be if you defaulted.
• Consider the repayment terms.
• Find out if the terms are negotiable.
• Where possible, speak to your credit officer and negotiate repayment terms.
• Set up a payment plan to enable you to pay as much as possible above the minimum payments as you can.
• Consider paying off more on loans with higher interest.
• Pay up the smaller loans first.

Avoid taking any more credit unless you can get an interest-free loan to pay off the loans on which you are paying interest.

Remember that the credit facility is not the enemy your mindset and attitude to money is. By developing a disciplined approach to spending, you can make credit work for you, rather than against you.