Ho, ho, ho, ho...how much do you want to borrow? With banks and other financial institutions going into overdrive to offer loans, consumers might be seduced into believing that yes, there is a Santa Claus.Well, shake the cheery ringing of the bells from your ears and listen up: Santa Claus is as real as the chimney in Jamaican houses. The fat white guy dressed in red and white from the North Pole is but a fleeting feel-good symbol. After he scampers back to the frigid North, you'll be left in the cold, and very real, squeeze of monthly payments.
So before you ask the bank to open up its vault for you, make your list and check it thrice, just to be sure that you keep you're spending right.
Avia Ustanny, Gleaner Writer
SHOULD YOU take the Christmas loan or one of the other credit products that is so readily available on the market? The temptation is daily increasing. Jamaicans who qualify can now walk into a bank and out again with loans (little or no collateral needed) or new credit cards with cash back options. Elsewhere, they can even get a credit card just to pay utility bills.
Need a new washing machine? It's easy. Even the furniture and appliance retailers are in on the credit bonanza. Courts Jamaica has come up with a new product, the ready finance card, to make getting their furniture that much easier.
The banks have reduced the stringent demands they once applied to loan collateral. RBTT first offered these special loans to professionals such as teachers and doctors and next came the Bank of Nova Scotia (BNS) with its expanded line of credit. One BNS loan officer who did not wish to disclose her identity, said the response to the bank's new credit policy has been very good.
These institutions were in turn followed by NCB with Payroll Plus, offering up to half million dollars "collateral free".
Kimberley Marsh, a 33-year-old professional from Kingston, who confessed that she cut up two credit cards two years ago with the sworn statement never to take another one, recently accepted a Visa card from BNS. This time, she said, she is determined never to carry balances, but to always pay off the balance each month, thereby avoiding the very high credit card interest rates. She took the card she said, to help with her cash flow situation, as very often when the bills came, her pay was not yet in the bank.
Michelle Spence, a 35-year-old single mother who resides in Greater Portmore, St. Catherine, told Lifestyle that she got a loan of $1.6 million from RBTT to consolidate her mortgage, which had 16 more years to run, and also for home improvement purposes.
"I was only paying $11,000 each month but I realised that if I continued with my old mortgage provider I would end up paying them $2 million more than I would if I refinanced. Now, with RBTT, I will own my own home in five years. Plus, when the improvements are complete I will have a master bedroom, an extra bathroom, a separate kitchen and a new washroom."
She said that the repayment of $45,000 each month is not easy but the prospect of owning her home outright in five years makes it worth the sacrifice.
Meanwhile, credit unions, once the best and cheapest source of loans, say they have not yet noticed a fall off in their clientele. Yvette Nunez, Marketing Manager of Church's Credit Union, noted that "the banks are really getting aggressive now. They are quoting on the reducing balance, but just the relationship we have with our clients is enough to keep them coming back to us."
The credit union, she said, still has the best rates, with interest rates ranging from a low of 16 per cent on reducing balance up to 28 per cent for unsecured loans. The credit union's education loan is still very competitive, she said, at 20 per cent on reducing balance.
Additionally, the credit unions loan protection insurance is offered at no cost to their clients. "We have seen no slide in loan disbursements, we have been getting our fair share of the loan market," she said.
Jennifer Abraham's, another 35-year-old professional, this time from St. Andrew, told Lifestyle that she thinks the bank rates are too high and that she will never borrow from the bank when the credit union is there with more affordable financing.
Names changed by request
The right time to borrow
WHEN IS it the right time to take advantage of available credit? Investment experts, Valdalee Spence, Senior Manager, Credit and Corporate Finance of Capital and Credit Merchant Bank, and Paul Taylor, Corporate Sales Manager of Jamaican Money Market Brokers Ltd. (JMMB) give us their advice.
1. Live within your budget and don't borrow if possible
First, they caution, if it is possible to stick to your budget and live without borrowing, then do so. However, if you must borrow, the critical thing is to satisfy yourself that you can afford the pay back.
2. Can you afford the payments?
Credit cards now have the money back feature which entices you to borrow. However, borrow only if you can afford to pay back and sustain said payments over the term of the loan.
3. Credit card watch
Never use one credit card to pay the other. You must also pay more than the minimum if you want to reduce the debt. Paying off the entire thing before the date of billing each month is really the ideal approach.
4. Save for a rainy day
Also make sure that you take into account savings for a rainy day. Have some money at hand in the event that something unexpected happens.
5. Shop around
If you have looked at your options and decided that you really can afford a loan (as opposed to merely needing one) then shop around first of all.
There are many options now available, but consumers need to look carefully at the price of these loan facilities. Many of these loans come at a very high cost indeed, if not punitive. Make sure to look around for the best rate.
6. Wait for awhile
It might serve your needs better to wait for awhile and save more of the money you need, rather than to
borrow now.
7. Do you really need it?
Look also at the matter of need. Do you really need that thing that you are going to borrow the money for?
8. Use your money or the financial institution's?
We also asked the question, should we use our liquid reserves or ready cash to purchase what we need?
The answer from both experts is that if you can get "cheap" money to borrow, it makes no sense taking money out of your high paying investments or to terminate a good savings arrangement. In that case it's worth looking at borrowing instead.
9. Smart borrowing
Valadalee Spence of Capital and Credit notes that one may also borrow for investment purposes, i.e. to buy stocks and shares. Some people have made good money on the stock market and have been able to pay back their loans and keep some profit for themselves.
10. Borrow for worthwhile purposes
Borrowing to purchase a second home which might generate income down the road is another good idea. Make sure that the assets you purchase are ones that are working for you and will bring you long term gains in the future.
- Avia Ustanny
