“An investment in knowledge pays the best interest.” – Benjamin Franklin. Many individuals in Ghana are facing significant financial challenges due to their reliance on digital loan applications. A 2022 study by the Institute of Statistical, Social and Economic Research (ISSER) revealed that over 60% of borrowers using these platforms struggle to repay their loans on time. Digital lenders often impose exorbitant Annual Percentage Rates (APRs) that can exceed legal limits, pushing borrowers into unmanageable debt. With inflation rates exceeding 40% in recent years, understanding responsible borrowing practices has never been more critical. Before you borrow, ask yourself: Is this a want or a need. Below are 6 responsible borrowing strategies that can benefit you:
Responsible Borrowing Strategies
- Critically assess Loan Terms and Fees: Before securing any loan, comprehend all associated interest rates, fees, and penalties. Many digital lenders blur these terms. Under Section 21 of the Borrowers and Lenders Act (Act 773), lenders must disclose all fees and interest rates transparently. Before you have an engagement with any loan application, contact customer service to confirm the accuracy of calculations before proceeding with any loan agreement.
- Choose Loan Apps That Build Your Credit Score: Many lending apps in Ghana and Africa are just concerned with their payback and interest rates. I recommend you select apps that contribute positively to your credit history with each timely repayment. Some reputable applications offer features to improve your credit score and provide non-monetary incentives, such as financial education resources and budgeting tools.
- Borrow Within Your Means: High-interest loans should primarily be reserved for emergencies. Taking out more than what can be repaid can lead to unmanageable debt traps. For example, if Kwame borrows GHC1,000 at an APR of 20% compounded annually, failing to repay it could see his debt grow significantly due to compounding.
- Choose Regulated Lenders: Only apply for loans with lenders regulated by the Bank of Ghana to ensure compliance with national lending regulations outlined in the Credit Reporting Act (Act 726). To avoid suffering unfair repayment and debt collecting actions in anyway. Regulated mobile banking options like MTN’s Qwikloan provide safer alternatives.
- Avoid Rollover Loans: Be cautious of offers that allow you to extend loans, as they often come with additional fees, trapping borrowers in a cycle of debt. Do not roll over loans, even with promises of lower rates and additional promotional offers.
- Prepare for Emergencies: Establish a financial safety net. Borrowing should be approached with an understanding that circumstances may change. Having a contingency plan for repayment difficulties is essential.
By understanding these responsible borrowing strategies and being informed about potential pitfalls, individuals can better safeguard their financial health during challenging economic times.
