Before You Borrow That Loan…
In our digital era, borrowing a loan is far much easier with the advent of lending apps. But could this make borrowing loans the most potent weapon fighting against our financial freedom?
In the past, any borrower would go through a process of scrutiny just so the bank can establish your creditworthiness, and source of income; let’s just say it was a process. Right now, a simple google search on borrowing money will blow your phone with ads on the best lending apps and platforms. Why is everyone so eager to give you money? Well, here’s a wealth secret from Steve Down: they’re not.
“Those who understand interest earn it, those who don’t, pay it.” — Steve Down, CEO, Financially Fit.
Lenders are more eager to gain money by making you feel like you’re the one gaining. The last thing they’re trying to emulate in their business objectives is Mother Theresa. As Financially Fit’s CEO would put it: Those who understand interest earn it, those who don’t, pay it.
The big idea is the invention of the ‘toothpick’; solving a need that’s not so essential yet comes at just the right time to be seen as one. You get to borrow cash easily. But, you get to pay for the convenience or provide collateral of equivalent or higher value so it can cover the risk of lending to you if you default (miss paying your debt). The sweet part of the deal for them is that you pay more than what you borrowed, and that’s where the interest rates and penalties come into play.
It makes sense, from a business perspective, of course, to make a profit for the value of convenience they provide, and to ask for great collateral to guarantee loan repayment. The problem is, that this model is less centred on the borrower if they don’t need a loan, don’t have a stable income or in the event of a default, a borrower can lose much more than the amount borrowed.
Your financial health and wealth are greatly affected by unsustainable borrowing loans. In most instances, bad debt can leave one in a debt trap. This easily affects the rich and those with modest incomes or barely making a living. The mental, social, physical and financial implications to an individual or company could be devastating
Here are seven factors for you, your family, company or business to consider before you borrow a loan and get into debt:
- Have a means of sustainable income
- Check the terms and conditions
- Learn about debt relief
- Mind The Interest Rates
- Prioritize being debt free
- Find alternative sources of funds/money
- Review your financial goals and wealth vision
1. Have a means of sustainable income
Always borrow what you can be able to pay back. Sources of revenue could be your salary if you’re employed, side hustles, property and assets that can be sold off for the same amount of money you borrowed or business profits.
The wealth mindset is built by always having the end goal in mind. Before you get into debt, be like the wealthy and visualize how you will get out of it and your cash flow plan. Avoid borrowing with the confidence of paying off a debt by taking another debt.
And by all means, selling your kidneys doesn’t count as collateral for you to get into debt.
2. Check the terms and conditions
Understand the lender’s terms and conditions for giving you a loan and what they are legally allowed to do as a company, business or individual. Understand your legal obligations when you choose their services or come to an agreement with a lender. Often financial distress in debt clearance has come as a result of borrowers being frustrated by processes or collateral being more than they could handle.
The wealthy always take time to understand what factors affect the income and outflows of their money before making financial decisions.
3. Learn about debt relief
Debt relief (also known as debt settlement) is a procedure in which your borrowed amount is resolved to a payable amount slightly lesser than the due payment to a lender. This is sometimes possible in a situation whereby you pay a lump sum and in exchange, your creditor or lender forgives a portion of your debt.
This is a way out of debt for you if you’re finding it hard to afford to pay back the full amount you owe. This also helps your credit score recover over time. (the rate of repayment for every time you borrowed money). There are debt relief programs and negotiators who offer services.
Did you know: In ancient world history, a form of debt relief was practised among the Jews. In the laws of Moses, after every 7 years of agricultural produce, the Israelites would forgive all debts owed. In ancient Athens, the legislator Solon instituted a law to end debt bondage that led to a growing peasant population. In the Quran, debt forgiveness is seen as charity and remission of sins from the creditor.
4. Mind the interest rates
Interest rates determine how much more you have to pay other than what you borrowed. In instances where it is negotiable, it would be wise to do so. Always have your reason for the interest rate you have chosen.
5. Prioritize being debt-free
Always prefer paying in cash to avoid credit card debt. Automate your debt repayments to reduce the risk of default which would lead to a costly penalty or tempt you to borrow more. Always have a debt repayment plan where you list all your money owed, loans, mortgage amounts and income streams so you can find a strategy for you/your business’ finances.
Good money management also helps you cut on costs in living expenses or business operations. This way, you won’t need to borrow money. Also, let whatever debt you take have a definite use and serve that purpose only. Wealth and financial success begin with good money management.
6. Find alternative sources of funds or money
a) Search, ask and apply for scholarships before you take a student loan.
b) Do a fundraiser, check insurance cover and take good care of your health to avoid medical loans/debt
c) Take odd jobs, or do a side hustle like freelancing where your skills and talents can earn you extra money. You could also sell belongings you no longer use or use online platforms to make money (legally of course)
d) Ask close relatives or friends and make up for the money you borrowed with a service you do that can offer value to them.
e) Search online for grants or make good product pitches for angel investors who have the financial muscle to fund your ideas or business
7. Review your financial goals and wealth vision
Your financial goals align the decision you make with the financial position you aspire to be in. Remember, the goal is to become financially fit. This begins with changing your view about debt and becoming objective with your vision. You may want to borrow, but you wouldn’t want it to be at the expense of a financial goal to put you where you will feel true joy and financial security.
The next time you think of borrowing, always remember that you are responsible for your future self. The choices you made put you where you are now. And the power to put you where you want to be lies in the financial decisions you make today.
What do you consider before you borrow money?
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