Businesses every where are run with money. Most businesses raise their capitals in the form of loans. Loans are as old as mankind and will continue to live as far as man lives. I, believe, everybody, has at least once been encountered with a loan transaction before whether formal or informal. We take loans from friends, sisters, brothers, employers, and more especially the money-lending financial institutions, i.e. the banks and other non-bank financial institutions.
Many formal loans are borrowed with the understanding of giving back the original loan taken together with some form of interest on it, so that the lender could benefit for the opportunity lost in not putting his/her money in another investment to earn them some return.
Loans taken from friends and family members are mostly interest free and there are also mostly in small amounts taken mostly for personal purposes. Their repayment period is also shorter and many of these loans are not even repaid, because some of the borrowers fail to be honest and reliable to perform their part of the obligation and agreement.
Loans could be good or bad depending on the terms and conditions of the loan agreement and the purpose for which the loan is contracted.
If a loan involving a large amount is taken and the purpose is to acquire personal property then that is a bad loan, in the sense that the loan is not for free, it will be repaid, so, it should go into an income generating venture to make more money for the loan to be repaid easily.
Good loans should be contracted for business purposes, which in the long term will bring more returns than the interest on the loan. A good loan’s interest is tax allowable but with a bad loan you bear the interest yourself. A good loan should help decrease your tax liability but a bad loan helps increase your tax liability
A good loan is a loan that someone else pays it for you. You don’t feel the pain, inconvenience and depletion in your cash flow. This means, you hedge the loan contracted, so its repayment becomes pleasurable.
Good loans increase the value of your assets. If you draw up your assets, you realize the loan has added to its value, if not then it’s a bad loan
Good loans have very moderate and affordable interest rates charged on them. Bad loans have interest rates that are skyrocketing and are unpalatable to contract and are never friendly to repay. Most Ghanaian loans are of this class. The interest rates on loans in Ghana are crazy and unbelievable. No wonder, all the banks, report higher profits year after year. Interestingly, the interest the banks give on our monies that we have deposited with them on savings, etc, is nothing compared with the rates on loans. Risks on loans? They are credible and very honest and less risky business ventures and people in the country, but how many banks in Ghana would grant them loans by using even the 91-day T. Bills rate as interest rate for them?
Good loans bring income home, but bad loans take away the little you have from home and give it to the lender. A good loan taken should be invested to generate some type of income for it to be a profitable loan. Bad loans are taken for purposes, which are not investment-oriented and bring nothing home.
Good loans are free from conditions and covenants that are unfriendly and tied or attached to your personal property, in case of default, you lose everything.
Good loans allow and give opportunity to re-negotiate interest rates downwards; bad loans’ interests’ rates are not negotiable after signing.
Mortgages are loans, they could be good or bad depending on what purpose the mortgage was contracted. Mortgages for personal property are bad loans, but mortgages but for business purposes could be good loans.
In my humble opinion, I would not take a mortgage facility to buy a house for my personal use, no. I know I need a house by a certain age, so I plan for it and build it gradually. If I don’t finish building it before I retire, generations after me will finish it, after all the land, the most valuable property, the land would have been acquired and owned by me or us.
In a mortgage facility it will be difficult to transfer the property to generations after you if you have not finished paying for it even if the land was bought by you. I wouldn’t mind taking a mortgage facility to buy a house and rent it out and the rent received should be able to pay the interest on the mortgage, if not then no mortgage for me.
If you take a mortgage facility for a personal property, then you become an employee for the mortgage company, because you would be working very hard for them till you finish paying them.
Good loans bring prosperity and wealth creation. Bad loans drain us financially and bring problems home.
© 2010, Godwin-Xavier Ayeebo
Email:gayeebo@gmail.com
Blog: www.g-xavierayeebo.blogspot.com
No comments:
Post a Comment