Final loan tips

There may be various reasons why a loan maybe needed, often, this may happen because of some unplanned events and expenses like urgent repair of a house/apartment, buying furniture or house appliances, car repairs and unplanned family members illness. These incidences may be either pleasant or unpleasant but call for emergency borrowing as it may be unavoidable. Though the importance of saving for emergencies is always over emphasized such becomes an impossible mission where income does not allow and borrowing becomes the only available solution.

At this point, importance of understanding informal and formal loan is key. Informal loan is a loan arranged with an entity not legalized to give loans including family members.

There are some people who lend out money at interest in our communities and such is regarded an illegal transaction and is likely to put both parties in danger. The person that gives a loan asking for a high interest rate in return is known as a “loan shark”. Although, most of the people tolerate these businesses, such is highly dangerous, people misuse others, take advantage of other people’s necessity, ignorance or negligence. In some extreme cases a person that is not able to repay a loan loose freedom.

Loan interests are guided by the Central Bank of Lesotho using different legislations governing the financial sector.

Formal loan is a loan arrangement made between two parties who have a business relationship and always involves a written contract where contractual rights of both parties are guaranteed by law. The two parties in this contract are expected to stick to the conditions as agreed in the agreement to fully enjoy their life. If it happens that the borrower fails on the obligation the lender has a right to exercise a right to collect the loan following on internal collection processes and sometime external where attorneys are appointed to take legal action against the borrower. This procedure is regularly more costly for the borrower.

It has since transpired that loan contracts are sometimes complex to be easily understood by most of Basotho who happen to sign without applying their minds around the set loan conditions. It is therefore advisable to take someone literate along, who has basic numerical skills and can be trusted.

Of importance to note even before applying with a bank for a loan, is that the bank may turn down a loan application despite of a purpose for which it required, if it considers application not a good business deal.

“When you borrow money your first priority is to pay it back, if not do not even attempt to.”