So your chama has now grown from the small, naive group it was at the beginning to a position where you can qualify for a bank loan . Probably you have already registered yourselves as a SACCO and are looking to expand even more. At this point, several banking institutions are knocking at your door, with irresistible deals and offers. As a Chama, you are wondering who is the worthy partner to invest with and whether taking out a loan is the best option.
Loans are necessary
First, it is important to note that loans are a necessity for financial progress. Even countries whose economies are booming will have loans; what matters is the manageability of the loans and the ability to repay them. With a good plan and financial management, a chama can greatly benefit from loans to improve their financial position.
However, a loan can also turn out to be the death blow to a chama’s existence if it is not approached with caution. Right from the application, spending loan money to repaying a loan, members need to be careful that they make the right decisions to avoid getting into trouble with the lenders. Here are some guidelines for group loans.
Go for an established Financial Institution
It is a reality that there are fraudsters who are out to dupe naive chamas under the pretext of helping them get loans. Most of these pose as “loan brokers” or “agents” who will connect you to lenders. Be careful as these may end up coming to your group of its precious savings.
Whenever you need to take out a loan, go directly to established financial institutions which will be able to guide you appropriately. Another benefit of dealing with established banks and institutions is financial security since it is unlikely that these will go bankrupt and leave your group on the rocks. They also tend to have favorable interest rates.
Be aware of all the hidden charges
Getting a loan at excellent interest rates is quite easy. However, these loans usually come with some undisclosed charges that could easily skyrocket the repayable amount. Such charges as loan insurance, redemption fees, and rule of 78s are just some of these miscellaneous charges. The point here is to do thorough research prior to taking out a loan and ensure that you only deal with trusted institutions.
Know your credit score
A credit score is an estimate of a borrower’s creditworthiness based on their credit history. A higher credit score will give you a chance of being charged lower interest on a loan as compared to a lower credit score. Knowing where your group stands in credit rating gives you a bargaining chip when it comes to interest rates. The lower interest reduces the amount of money repayable hence the group gets more value from the loan.
Know what you need
Understand exactly how much money your chama needs before applying for a loan. You can hire a financial advisor to assess your group’s needs and finances and give you accurate figures. That way when you approach a bank or other lending institution, you will not fall under the pressure of borrowing excess money that would not be well accounted for. Know how costly your projects are and the reach of your budget, then you can determine the amount you need to borrow.
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