(Source: FNB, edited by Issa Sikiti da Silva). People need to loan money responsibly, understand the basics of that borrowing and borrow for the right reasons, South Africa’s First National Bank said today.
“Not all loans are bad – home loans, student loans and loans to start a business are some of the instances when borrowing is good for your financial health. However, every loan you take out comes with a financial responsibility, and taking out a loan to finance your lifestyle, pay for day-to-day items or a holiday is not wise, as this will eventually catch up to you,” FNB head of consumer education Eunice Sibiya said.
There are many different types of loans but they all have one thing in common, which is that they need to be paid back over a certain amount of time with some type of interest, she said.
The bank warned consumers not to borrow from the mashonisas, the Zulu word for illegal informal money lenders. This, the bank said, was a most risky loan to take out.
Sibiya explained:“Loans from mashonisas may seem like an easy way to get money, but they are often very expensive. The interest rate is usually almost impossible to pay back and most people will find themselves in debt that they will never be able to recover from.”
She urged people to approach regulated financial institutions when considering to loan money.
“Loans from a reputable financial institution will come with a contract, which means that you are contractually obliged to pay it back at a certain time of month. Ensure that they are budgeted for and honoured,” she said.
“Make sure you shop around as well as consult several lenders and advisors. There are many different types of loans with different interest rates, so do your homework for the best deal.
“Before taking a loan of any type, understand the terms and conditions and check the total cost of the loan. Make sure to look out for extra costs which include initiation fees.
“Stated in your contract should be the loan amount you have applied for, your repayment amount, interest, how long you have to pay it back, any additional fees and the total amount you will end up paying on your loan,” Sibiya said.
“Read the document completely before signing and make sure you understand. This will reduce the chances of unwanted surprises later.
“Most importantly, borrow only what you need.
“You shouldn’t be spending too much of your monthly salary on covering monthly loan repayments, remember you must still pay for your living expenses. Be financially smart.”
FNB, a division of FirstRand Limited, was named the world’s most innovative bank of the year at the 2012 BAI-Finacle Global Banking Innovation Awards.