Owning to the impact of Covid-19 on the economy and businesses, many businesses will struggle for capital when the lockdown is over. Many cease to exist if the capital is not there and, for the surviving ones, they might opt for loans in order to keep afloat.
Given the obvious backlogs in accessing loans from banking institutions, banks demand as interest and the requirement for a collateral a new market for many financial technology platforms that now provide loans to individuals and small businesses at affordable rates relative to banks and without the usual cumbersome paper works usually associated with approaching banks for loans.
Peer-to-Peer (P2P) lending and a lot of online borrowing platforms actually help individuals smooth out their consumption by providing the opportunity to put future income to use at a cheap rate than is obtainable at traditional platforms.
While this is a welcome development, many individuals can easily get carried away by the ease and lower cost of borrowing. On most of these platforms, it takes less than five minutes to process a loan and one can get up to N500,000 on the spot without providing too many documents.
Below are the things you need to consider before going for loan from these P2P lenders:
The Type Of Loan
Before applying for a loan think about what you want to use the money for. There are lots of different types of loans in the market, henceforth it’s important to choose a loan that suits your situation and what you intend to use it for.
Your Current Financial Situation
The most important factor in deciding whether to borrow money is you. Looking at monthly and yearly budgets may help you understand just how much you can afford to make in loan payments, thus helping you decide on a loan amount.
Your Credit History
The finest rates are available to those with the good credit history. Most lenders are anxious about lending for risk of default. If you had defaulted before, chances are slim that you will be considered for a loan by any lender.
Consider The Interest Rate
Even if this is one of the most important details governing our decisions, you should not be blinded by faulty advertising. A lower interest rate is a good thing; but it also means that the repayments will carry on over a longer period of time. If the interest rate is reasonable compared to the loan term, then go ahead and sign those papers.
Loan Terms And Agreements
Always ensure you read thoroughly the terms and conditions for any loan you are applying for. There could be some hidden clause in many. If possible, go through it with your lawyer being present. You will be reported to the credit bureau when you default. That means, you might not be eligible for loan from any lender.
How You Plan To Pay It Off
This seems like an obvious point but it’s important to plan out how you intend to repay the debt. Will you be paying weekly or monthly? Do you plan to pay it off sooner than the term? These key factors will help you choose the right loan to ensure that you avoid any unnecessary costs. Some lenders will offer you a discount when you pay off sooner than the term stated.
Penalty Charges
Refusal to repay the loan is a reality we all face. In case you are not able to pay your dues on time, there is normally a very weighty penalty indicted on your credit account. You will be reported to the credit bureau when you default. That means, you might not be eligible for loan from any lender.
Hidden Charges
Make sure you read the fine print before finalizing a deal. There might be charges you are not aware of, especially for home equity mortgages. Find out about things like early repayment fees, arrangement charges and the like.
In conclusion, before going for a loan, always explore other options and see how to can manage without the loan. But if you must go for loan, always take precautionary measures and ensure you pay off as when due.
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