dinsdag 10 april 2012

Making loans an effective financial tool

Everybody dreams about retirement without sorrows, solid degrees for the kids or simply the security of having money set aside
  • By Frederic de Melker, Special to Gulf News
  • Published: 00:00 April 7, 2012
  • Gulf News
Everybody dreams about retirement without sorrows, solid degrees for the kids or simply the security of having money set aside. With significant focus in the mass affluent space on managing savings and wealth, insurance policies are underwritten, investment plans are initiated and monthly savings are kept in a wide variety of accounts.
But we are not living in the future, and would like to make our lives more comfortable today. Owning a roof above our heads, driving that fancy car or starting a personal project are some of the many things we want to go for right now and not tomorrow. Unfortunately, not all of us are millionaires who can afford paying directly out of the pocket. A loan helps to discount future revenues and provides the advantage of enjoying life right away.
If you are considering a loan for the first time, it may be a good idea to establish a relationship with a bank. Opening a chequing or savings account is helpful. Having an active bank account in good standing clearly indicates that you can manage money, and lenders often use this information to determine whether you are a credit risk. Banks also often look at your employment history, and records of your steady job history will improve your chances of qualifying for a loan.
Do your homework
Before you pay your bank a visit, there are two things you should review. First, you should ensure that your plans are realistic and achievable. Sometimes, it is better to stay at home for a year instead of borrowing money for that dream holiday. Not meeting the obligation of repaying a loan can put you in a difficult position, and those ten days in paradise are simply not worth it.
Secondly, you should review the amount of money you are already paying off every month, and consider if you can meet additional repayment demands. Making your budget helps you to stay out of trouble. Be sure that you can survive for at least six months, if for some unavoidable reason you lose your monthly income. It is not advisable to count on future bonuses. When you badly need them, they are never there!
Borrowing costs money
Everything has its price. A loan is not a free gift. The most obvious cost is the interest you have to pay. The rate can be fixed, variable or a combination of both. Often, there are fees involved to process the loan. It is very important to take your time and inform yourself about the best price in the market. A product might be very interesting at first sight, but after some in-depth research, it is possible that there is a better alternative.
A credit card is a loan
Credit cards are very handy and flexible, and therefore, seen as an attractive instrument to pay your daily expenses. Beware that the day your cash reserve is not in line with your budget, that flexibility can work to your disadvantage.
Be pro-active in managing your loan portfolio.
If you pursue a healthy financial situation, your loans and savings need to be in balance. Your relationship manager can guide you to finding the right set of solutions. A pro-active relationship will help you review your situation regularly and optimise the cost of borrowing versus the benefits the loan is bringing you. It is important that you, as a customer and holder of the portfolio, take the lead and sit with your advisor regularly to update yourself on the status and see what opportunities are there to improve your financial situation.

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