These are some types of loans you should avoid at all costs. The loans business has become a den where their guarantors devour many scapegoats. The number of Sacco’s are increasing by the day.
Banks are continuously adopting new strategies of getting people to take loans.
Since it is their job to make money through lending money, banks often have very curvy and sweet ways of luring people to take loans.
They often use some terms like affordable, unsecured and readily available loans.
Loans are useful because they help people grow their businesses. However, some people take loans without considering the aftermath of the loan.
As a result, credits end up eating into the profits of the individual. Eventually, they are unable to service the loan further.
A loan that is increasing your expenditure and risk of doing business is not worth taking. For that reason, these are the types of loans you should avoid at all costs.
Types of loans you should avoid at all cost
Loans are sometimes vital for business growth. However, if you can manage to run the business a little further without them, the better.
This is a list of loans that you should avoid at all costs.
1. Personal loan
A personal loan is a perfect way of showing that you are servicing a lifestyle that you cannot afford. That is outrightly wrong.
Banks look for such people to give them loans for personal medical care, vacations, education, and households.
Whether secured or unsecured, a personal loan is not the way to go as they can be very risky.
You should instead work hard to grow your business and finance all your individual needs from your pocket, not through loans.
2. Secured loan
To eliminate the risk in case of default of payment, many banks ask an entrepreneur to pledge an asset of collateral while applying for the loan.
Most of the time, banks prefer businesses, cars, and land as collateral. Banks do this because they are considering you as a risky borrower. They fear that you may fail to repay the loan in full.
In case of any misfortune and you are unable to repay the loan, the bank will gladly take your assets.
They will repay their debt, and you will be left to deal with the aftermath of your failure.
Instead of a secured loan, unsecured loans or signature loans are better, but they are often given to people with an excellent credit score.
3. Car loan
Most Kenyans, especially young people, think of how they are going to get a car even if it means borrowing.
Banks bait those that are lucky enough to land a job because they know young people nowadays do not have wise financial choices.
However, what most people are ignorant about is the fact that a car is a liability and it starts to depreciate soon after it has been purchased.
Servicing a car loan, fueling it, paying for insurance and taking it for service can be very expensive. Most of your money can be going to servicing and fueling your car.
Instead of going that route, one should focus on building their life and probably starting a business that will increase their revenues to a point where acquiring and servicing a car will not be stressful.
4. Mobile loan
I am not against the idea of mobile loans. Mobile loans are good, and in fact, I have used them severally.
The most significant advantage of mobile loans is that you do not have to queue at the bank halls to get them.
You get the loan at the convenience of your phone. The more you borrow and repay your loans, the more you build your credit score.
Read Also: Get an instant Mobile loan
The problem of mobile loans is that they are not regulated and the interest rates are often too high than bank loans.
As a result, bigger loans attract huge interest making it hard to pay the loan in full in the agreed repayment period.
Since most mobile loans should be paid in one month, most people find themselves listed on CRB for late payment.
Being blacklisted on CRB can hinder you from getting loans from other institutions.
5. Mortgage loan
A mortgage plan is a perfect idea if used honestly and faithfully. It can also be a pain if you try to be smart with the loan.
Mortgage loans are tailored for people with different credit scores to allow them to purchase an affordable real estate or house.
However, mortgages are not cheap, and their interest rates are often higher. Borrowers have to live most of their life paying off the loan.
It becomes challenging to balance your personal needs and the mortgage installments if your revenues are limited.
Instead of getting a mortgage, it is advisable to plow your revenues into business, and sooner or later, you can finance your own dream home from your pocket. That is it with the types of loans you should avoid at all costs!