Things Salary Earners Should Consider before Picking up a Loan

Three well dressed bankers walked into our office. They met about four of us sitting together as we gist and work. They came with very amazing offer for workers that were stuck financially – they have loans that can get us out of our financial difficulties.

These marketers were so amazing as they talked about how easy it is for us to pick up loans without collaterals and how the bank will spread out the repayment in such a way that we won’t feel it. Wow! It sounded so good to be true. Well, people like me closed my ears – that was the only way I escaped them.

When they left, my colleagues asked why I didn’t pick the loan application form. I told them that I have seen what such loans can do to salary earners, so ‘ayam’ not interested. I have known salary earners that picked up such loans and kept paying for money they didn’t know what they achieved with. Because the conditions for collecting such loans are easy to meet, they just go ahead and collect the money without a prior plan on what to do with it. All they care about was collecting a large sum of money.

Well, there are things that these bank marketers sweet tonguing you into picking up loans won’t tell you and that is what I want to point out here. Don’t be enticed by their offers; sit down first and do all the calculations before you fall for it. And if it is possible, talk to someone that is experienced before embarking on this. If you are married or live with a partner, whom you know will be affected by your decision, kindly speak it over with him or her before going for that loan. Well, here are some things you may want to think over before signing that form.

Things to Consider Before You Pick that Loan

1. What do you need the loan for?
You might be surprised if I tell you that some people pick up loans without thinking of what they want to do with it. Don’t think I’m exaggerating because I have seen that. Some people will just hear that a particular bank, cooperative society or staff union is giving loans, and pick up forms to fill because they too want to collect the bulk money. When that money finally comes in, they use it to ‘eat garri’ and spend years paying for it.

So, before you go for that loan, ask yourself if you really have a feasible plan for the money. If you don’t, leave it till you know what you can do with a bulk sum of money if you get it.

If you have a tangible plan, also ask yourself if that plan deserves the sacrifices that come with picking up the loan. For instance, people pick up loans to pay their rents. This means they will have problem paying for the next rent because the amount that will deducted will not allow them to save up for rents.

Next thing is to ask yourself if what you are picking up the loans for will bring in more income or help you save money. For example, if you are picking up a loan to complete your house and pack in, you know that you will be able to save the money you would have used for rent. So, if the loan won’t help you to save or generate more income (like expansion of business), think twice before going for it.

2. How much will be left in your salary after deduction?
Usually, loans given to salary earners are serviced by their salaries. Sometimes these marketers will tell us that they will spread out the loans in such a way that we won’t feel it. But, have you asked yourself how much will be left for you if the bank takes its own? Can you actually sustain yourself and your dependents from that amount?

Now, if you have been struggling to take care of yourself and your family before picking that loan, don’t you think it is unwise to reduce that little salary you have with the loan deductions? Most people don’t think of this until it happens. A lot of salary earners keep begging and borrowing more money because about 30% of their salaries have been tied to loan servicing.

3. What is the duration of the loan servicing?
The marketers will tell you they will only take 20k out of your salary that is just 80k and you are happy because you considered that you can manage with 60k (you forgot that even 80k couldn’t solve all your problems). Well, here is another bomb for you – you may have to manage that 60k for the next 6 years. Hope you can survive that?

So, before you sign and submit that form, ask them how long they will deduct your money, and what are the terms and conditions attached to the deductions. When you find out all these, go home and manage that amount that will remain in your salary for 2 months or more and see how sweet it is. If you can survive with it for those 2 months, then go for the loan. But if you found it very hard to breath within these 2 months, please avoid that loan. You won’t survive the 5 or 6 years of the loan repayments.

4. How do you make up for the deductions?
I told someone not to pick a loan unless he has another source of income that will sustain him and his family throughout the duration of the repayment. He told me I don’t have faith and went ahead to pick the loan because he believes that God will provide. Now one of the ways ‘God will provide for him’ is by asking me every now and then whether “he fit see 5k for my hand”.

See, before you pick a loan have a plan on how to generate income that will fill up the holes the repayment deductions will create. Don’t look at others that pick that loan because they may have other plans that you don’t know of. I know someone that picked up loan to complete his house and didn’t feel the bite of repaying it that much because his wife has a good job and was contributing towards the family upkeep. So, if you know that your little salary is all you have, please ‘waka pass’.

And, don’t make the mistake of picking a loan to start up a business, or to give someone to start a business. This is because the business may take time to start yielding profit, or it might even flop. I know someone that took a loan to buy beans from the north to sell here in the east. Well, he made the mistake of buying the wrong type of beans and had to sell well below the market price (and he didn’t even have a storage facility). So, pick loans to expand an already thriving business and not to start one.

My advice is this, before you pick that loan, if you must, find another source of income (that isn’t begging people for money) that will help you to cushion the effects of loan repayment.

5. Do you really need this loan?
When I went for my master’s degree, a lot of people told me it will take me millions of naira to complete it. I was discouraged, but I know I couldn’t do without it. I got advices from colleagues to go for loans because that was how most of them scaled through. Personally, I don’t like loans, so I refused. I was told by many that I will drop out and all, well thank God I didn’t.

The thing was that I actually tried to find other alternatives to paying my schools fees that didn’t involve borrowing. I increased my side hustles and my saving culture. I also noted that the payments in school are done in bits, and not as a bulk. I did all investigations and found out that I really don’t need a loan to do my MA.

So, before you go for that loan, make out time to do some assignments. Look for alternative ways to fund that project or business. Like one economist that work with CBN told me, picking a loan to start a business or go for further studies means that you and the bank are the owners of that business or that certificate (you can imagine having my bank name beside my name in my certificate, lol). So, do you really need that loan? Or are people making it look like you need it?

Please, I’m not kicking against loans, because I know of their importance. What I’m against is people picking up loans when they shouldn’t. Let those that really need this loan go for it. We need farmers and manufacturers to use loans to make things better here, not some salary earners picking up loans because they want to do what others are doing.