challenorfinance

The one golden rule for using credit, that borrowers should understand, is that the usage of credit is just as important as who you get your loan from.

Once your credit has been approved, you may be tempted with many options on how to use that money. Give serious consideration to the ways you will spend your money, otherwise before you know it, your money could be gone and it will feel that all you are left with is the monthly repayment.

There are two types of credit and it is important to distinguish between them.

Consumption Credit: This is borrowed money which is used to purchase items that are non-durable, or will be used up.  Items such as clothes, food, transport, household items, furniture and the likes. These types of items generally don’t make you more money in the future.

Development Credit: This is borrowed money which is used to fund activities that are considered to be an investment that will produce a future value.  Activities such as funding education, buying a house or making home improvements, investing into a business or buying shares.  Using your borrowed money on these types of activities, will either lead to the growth of your income or to the increase of your lifestyle as a whole, into the future.  Taking a loan to study further is a good example.  Once you graduate, you will be in a position to secure a higher paying job.  Likewise, improvements to your house will add value to it, when you are ready to sell it.  Or starting a business can bring in extra income.

In actual fact, using credit on consumption items generally costs you more than using the same credit to purchase development activities.

It is possible that someone may fall into dire need and a loan is the only option out of trouble. But for all other purposes only take out loans that will result in, and contribute to, an improved future.  The iconic investor Warren Buffet once said that price is what you pay and value is what you get.  Make sure that the value you get from the loan will outweigh the monthly instalments you’ll be required to pay.  Look at the big picture.

First, the bad news: Good habits normally need to be taught. Most of us aren’t born wanting to work on projects before they’re due or cover our mouths when we sneeze. More seriously, our desire to have fun and impress others typically results in the natural desire to spend, spend, spend.  That is much more fun!

Now, the good news: Habits are usually easier to make than they are to break, so if you can establish good financial habits, they’ll tend to stick and could benefit you in the future.

Here are a couple of useful ideas for building healthy credit habits:

Try to only use credit for larger purchases.  Wherever possible, pay cash for those smaller items.

Avoid taking out a loan or applying for in-store credit to obtain smaller consumable items. Preferably, you should save up for a few months and then pay cash for these items. Many store accounts do offer an interest free initial period, but once your credit limit is approved, there is a temptation to buy more items and to spend more than you than you originally planned. This impulse buying will result in you eventually paying interest on the outstanding store account balance.  So a relatively cheap, small item can become a noose around your neck.

A wiser option is to only use credit for larger purchases such as:

• Education: University or school tuition
• Property: Invest in a flat or house
• Entrepreneur: Start a business

These are options that will assist you in making more money in and for the future.  Spending money to make money is a smarter choice.

With the “Age of the Internet” having taken over all facets of our lives, we are all taking advantage of this quick and hassle free way of doing everything, from the comfort of our own homes. Company and client face-to-face interaction is quickly becoming a thing of the past and online loan applications are becoming more commonplace. But when dealing with finances, there are still a number of people who are scared to apply for loans online. If you are one of those people, or if you prefer to make informed decisions before diving in head first, read on. We have compiled a list of 10 tips to help you overcome that fear and make a more informed choice, when applying for loans online.

“It’s simple”, we say, “just Google it!”  And Google obligingly offers up a wide variety of fast online loans, over multiple pages, for you to choose from.  It is, quite simply, mind blowing.  The questions going through your head are: “How do I choose the right loan company, from the varied options I am being confronted with?  What are the important factors I should look into when making my selection among the loan companies out there?  How do I make this less scary?  What should I do?”

Start by following the tips below, thereby weeding out those you definitely don’t want and zooming in on the ones that meet your requirements, until you can identify your partner in financing your needs.

Online Loans Tip #1: All micro-lenders in South Africa need to be registered with the National Credit Regulator.  This means that they are reputable loan providers and their fees and interest rates are regulated.  Look out for the NCR badge or proof of registration (like the NCR Registration number) on online loan websites.

Online Loans Tip #2: Do not use a website that requires you to pay a fee before you are able to apply for the loan.  This is how con-men and loan sharks make their money – and how you will lose yours.  They take your money and you will never hear from them, or your money, again.

Online Loans Tip #3: Make sure that the online loan website has contact details.  Besides ensuring that you will be dealing with a genuine, reputable micro-lender, you may need to follow-up on the outcome of your loan application or speak to a consultant about your account.  You could even test call the number to ensure that it is genuine, to allay any suspicions you may have.

Online Loans Tip #4: First decide what your needs and priorities are, before you shop for your online loan.  Are you looking for a short-term payday loan, to see you through until payday, or are you contemplating a more substantial, long-term loan, which will be paid off monthly.  Some websites only offer one or the other and may not offer the amount you require.

Online Loans Tip #5: Always do the math.  Ensure that you check what your estimated repayments would be to confirm that you can afford, and budget for your loan.  This can also give you a better idea of the duration you should select for paying off your loan.  A shorter term with higher repayments but less overall interest, or a longer term with more manageable, lower monthly instalments.  Design your loan to suit your pocket.

Online Loans Tip #6: How soon do you need the loan?  Depending on what you require the funds for, you may be planning a long term project, or looking for urgent funds.  Ensure that you read the fine-print and that you will not have to wait days and weeks for approval, and that once your loan is approved, there will be no delays with your receiving the money.

Online Loans Tip #7: Always be honest.  In these tough times, many people have, for one or another reason, a bad credit record.  It is always better to be upfront about this when completing your online loan application.  In this internet age, it is impossible to hide this and it is far better to have declared it openly, than to have the micro-lender find that you have hidden the fact.  Your chances of having your loan approved are better this way.

Online Loans Tip #8: Once you have an approved loan, remember to keep your details up to date with your financing partner.  This will ensure that you continue to receive statements and any other correspondence, and are kept up-to-date with any new products or offers.  Also, if you have long term plans and intend to apply for additional loans in the future, it will simplify and possibly speed up the process thereafter, especially if your bank details have changed.

Online Loans Tip #9: Form a partnership with your loan provider.  Our needs are wide and varied and although we all would prefer not to get into debt, this is sometimes unavoidable.  Some loan companies will offer lower rates on your future loans, as you develop a track record with them and improve your credit record.  So, ideally, if you have chosen wisely the first time you apply for a loan, your online loan website could become your favourite.

Online Loans Tip #10: Fixed instalments and interest rates.  Not all micro-lenders offer a fixed interest rate and consistent instalment amounts.  This makes it impossible to budget and can mean that you end-up paying way more interest on your loan than you should be.  Check the website for any comments about this to ensure that you do not fall into this trap.  The simpler the website is, the less likely there are to be hidden clauses and fancy legal footwork, designed to lure unsuspecting victims.