Look out when crossing the road – or taking out a loan
What you need to know:
- Anyway one looks at it, using other people’s money to grow your own interest is a growth model that one can argue little with.
- The government can ensure that the regulatory framework is right for customers, but only customers can ‘play ball’ with banks
I was gratified to read that commercial banks are struggling to fit into the new regulation regimes that require them to declare the total cost of lending to applicants of loans upfront.
No doubt time and maybe even money will be spent finding new ways to "kill" the customer. After all, banks in this country make obnoxious profits riding on people’s backs.
Banks have over-capitalized on increasing the value of a single transaction (especially for loan services) by squeezing the customer harder and tighter every time. Has any Kenyan heard of a bank going on a customer recruitment drive? Probably not!
They likely would not be bothered to increase their customer base, since they will catch you when you apply for a loan. And you will, on that mortgage, or to expand your enterprise or to diversify your financial interests.
CASH COW
All those tents pitched in organizations all over the city are selling loans. How many Kenyans have stopped to wonder why banks would be so interested in giving loans? Can you keep a secret? Loans are their cash cow.
That is as it should be, I guess. Banks are in the business of making money, aren’t they? Any way one looks at it, using other people’s money to grow your own interest is a growth model that one can argue little with.
However, consumers of loans owe themselves basic safety measures to ensure that as little as possible of your hard-earned money ends up in the profit account of the bank. Would you cross a road without looking in either direction? No? Good. Then do basic research before taking out a loan.
The worst research one can do is looking at television advertisements. You will be sunk deeper than the Titanic. Some of the financial organizations claiming to have the lowest interest rates are charging the highest rates that regulations can allow.
LENDING TERMS
As a customer, you do not need to be a mathematician or even to be business-savvy to see this — you just need a calculator and the rates of other financial institutions (they are available, for free, in the previously mentioned tents) to see just what a rip-off those rates are.
The fact that the organization you work for has an MOU with the bank for ease of borrowing does not necessarily mean that anyone in the organization has taken the trouble to understand the lending terms.
If you are an ignorant loan consumer, that is just more rope on which to hang. It is your salary that is servicing the loan and therefore it is your responsibility to understand its terms.
The government can ensure that the regulatory framework is right for customers, but only customers can "play ball" with banks. Remember the disdain with which international banks treated customers a while back, requiring standing balances that would pay rent for a middle-class family? A mass exodus from these banks made them calm down, and the same can happen with interest rates.
ASK QUESTIONS
Start by asking your bank what its annual percentage rate is before signing on the dotted line. If you are taking the money through an institution you work for, be sure to understand what your monthly deadline is for servicing your loan.
Banks will always put it a couple of days prior to your pay day, making borrowing very expensive for you. Study your loan balance with a fine tooth comb. Do not assume the figures on your pay slip or statement are true until you have counter-checked them against your payments.
And guess what banks do if you increase your monthly payments to a loan without informing them? They simply put the money in a suspense account, claiming they have no idea what you are paying for, and no, it is not their business to call you and find out. Meanwhile, your interest is running like a mill.
The government is making efforts to regulate. Let the customer do the rest.
Twitter: @muthonithangwa
