ACCESSING LOANS

The Consumer Affairs Commission (CAC) is aware that consumers will not always be able to make cash purchases at every transaction and therefore has provided the following points for consideration, as a guide to evaluating loans and credit facilities:

Consider the Purpose
The purpose of the loan whether, for pleasure, leisure, investment or necessity, will guide your choice of institution as well as impact your decision regarding the duration of the loan and the terms that you are willing to accept.

Life of the Loan/ Repayment Time
The time from when you receive the loan and make final payment should be given serious consideration. A longer loan will more often than not translate into lower monthly installments but will require a steady income for the entire life of the loan.

Interest
This is what you pay (the cost) for borrowing. Shop for the lowest rate and where possible go for a reducing balance method of calculation instead of an add-on method. Despite seeming lower, add-on rates work out to be higher than reducing balance rates. For example, let us assume you want to borrow $10,000.00 and pay for it over the course of a year

Non-Interest Related Charges
Charges related to processing, service, administration; mandatory deposit, late charges and other costs not directly affiliated with the loan must be calculated, as they will impact the total cost of the loan.

Fixed/Flexible Interest Rates
Interest rates which are fixed, that is, will not increase or change from the amount agreed upon, are more desirable as they facilitate long-term financial planning. However, flexible interest rates may result in saving if interest rates decrease (interest rates decrease: payments decrease), but the reverse is also true if interest rates increase so will your payments.

Repayment Terms & Conditions/ Penalties
Look carefully at the details, fine-prints and otherwise.

Credit History
Will I meet the standards set out by the institutions? Find out what is required, and if you match up.

Personal Finances & Job Security
Before you put yourself in debt ensure you will have a job or some other steady source of income. Look at your monthly expenditure and see if your repayment amount will fit into your existing budget. If it is much higher than you can afford then you may have to opt for a longer payment period, borrow less, or not borrow at all.

Insurance
Is the loan insured and what does the insurance cover e.g. your mortgage that has an allowance for insurance may only cover the structure of the house and not its content.

Time Allotted for Shopping Around
The more time you allot is the more time you will have to arm yourself with knowledge and compare the offerings of a variety of loan providers. So give yourself adequate choices and make the decision, which is best, and not necessarily the quickest.

Remember it is always better to save toward short-term goals such as purchasing a Television set or a sofa than to take out a loan or enter into financing arrangements e.g. Hire Purchase Contracts. Use loans as a financing option for medium to long-term goals that require substantial amounts of cash e.g. buying a car or a house.