Understand the small print; Thabo has been struggling with his debts for the last eight months; seemingly the debts are not getting any smaller or any less.
Thabo decides to take control of his financial situation. He decides to write all of his debts down on a piece of paper, prioritising them in terms of the cost of each one.
He then writes down the monthly interest each one is incurring. Thabo soon realises that by doing this, many of his debts are costing him more than what he thought. Thabo decides to seek advice from his bank. Thabo’s bank manager discusses his options with him, and although he/she wants to assist; is not able to do more than advise him due to the contract Thabo had signed with the bank. His loan with his bank was a set term, and not flexible.
Always read and understand the small print
It is important that we always understand the terms of any contract that we sign, before we sign it. Often there are many choices available to us, if only we take the time to look for them.
Become a smart shopper
Before we commit ourselves to taking a bank loan, or buying some furniture, or opening a bank account, or any deal whatsoever, shop around. Write up a list of questions you want to ask, and also write a list of the terms you are happy with, for example; how much can I afford to pay for this each month? Do I want to pay off a loan quicker? Do I want to have a flexible loan? Is the interest added on to the loan monthly, or added onto the loan at the beginning? What is the interest rate?
Then visit all the suppliers of what you are looking for. If it is a bank account, go to the banks in your area, and ask them why their services and loan options are better than their competitors. Get them to show you their savings rates, loan rates, etc. Ask them if they run any specials, and then ask them to explain the specials, as often these can be misleading. Ask them for their terms and conditions, and then ask for help to understand them.
If you are looking for furniture, do the same. Go to all the furniture shops in your area, and compare the prices on the furniture you like. Ask them what their terms are, and what your monthly repayments will be?
Take the monthly repayment and multiply it by the number of months you have to pay the debt off. The difference between the cash price and the amount you have just calculated will be what you are paying for the loan. Is this amount acceptable? Ask each shop for their Terms and Conditions, and ask them for their help to understand them.
You are the customer; you are allowed to ask as many questions as you like!!
Paying off a loan quickly
Sometimes it is beneficial to pay off a loan quicker. Then you will have more money to spend on paying off your other debts more quickly. By doing this, you will get out of debt. However, it is important to know and understand each of your debts. Some loans have the interest added on at the beginning, not monthly. If this is the case, it may not be wise to pay this debt off quicker. If you are not sure, phone them and ask.
Sometimes, you may find you will be charged a penalty for paying off your debts quicker than you agreed to in the contract. A loan provider must accept your money to pay off your loan quicker, but they are within their rights to charge you a penalty. Ask before you pay off the debt, what will the penalty charge be? Then you will know if it is worth it or not. Remember, the Law in Botswana does not allow a loan provider to charge you more in interest than what you originally paid for the item, or what the original loan amount was.
Taking good advice
If the advice you are being given sounds illegal, or too good to be true, be suspicious, even when it seems to be working in your favour. It will cost you more in the end.
Sometimes people may think they are helping you, perhaps by adjusting the figures a little bit, such as how much your salary really is, or maybe how much your expenses really are, in order for you to get a loan approved. The reality is, if you can’t afford the loan in the first place, you will only get into financial trouble a few months down the line. If you can’t afford to pay the debt today, how will you manage to pay it in three months’ time?
Take your income, and deduct your monthly bills and expenses. The money you have left over is available money to service a loan.
Firstly, do you really need to take a loan at this stage, or can you save this amount and buy what you wanted in six months’ time from savings? If you must take the loan today, realise that you can only afford to pay the amount of money you have left over after all your bills.
This is how loan providers should be assessing your ability to afford the loan. If it is not, be realistic and walk away, you can’t afford the loan and you will only get yourself into financial trouble if you take the loan!
*Modisa Maphanyane is Sales Manager a Kalahari Training Institute (Pty) Ltd also known as KTI. Kalahari Training Institute is the premier provider of vocational training in Botswana. KTI works with employers around Botswana to upskill all Batswana in the workplace for personal growth and productivity. The Institute offers over 50 BQA accredited courses in all fields of business and industry.