Information on Loans

A loan is a financial instrument in which a lender sells money to an individual or organization in need of money with a promise to be repaid at a cost known as interest. Banks, credit firms, SACCOs and other financial institutions licensed to do this kind of business avail money to needy individuals. Various people may need a loan, including businesses, individuals, organizations and groups of people. Any one of these parties who finds it necessary to finance their interests can approach lending institutions to borrow loans. Whether you are held up with medical bills, have cash flow problems or simply want to invest, you can approach a bank for a loan.

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How do loans work?

Loans are credit facilities provided by banks, credit firms and SACCOs among other financial institutions. Loans are borrowed when an individual or an organization in need of money approaches a lending institution with a promise to repay the loan in compliance with the lending terms. The loans come with varying terms. There are different types of loans and they include personal loans, mortgage loans, same day loans, and car loans. Loans can be either fixed interest loans or may involve changing interest rates depending on the prevailing economic situations.

Why are loans good and why are loans bad?

Anyone who has borrowed a loan at the time when they were trapped in a financial distress will tell you that a loan is good. In the same breadth, loans can be far too bad, especially if they do not serve the purpose for which they are borrowed. Put it differently---loans are only good to the extent that they will help you through tough financial times. But remember that loans come with a cost. Some loans are too expensive for individuals and organizations alike and when this happens, borrowers can have challenges meeting their loan obligations. Failure to pay loans or falling behind schedule can be a fertile ground for foreclosures, repossessions and being blacklisted---and to in some cases damaging the credit scores. Banks will entice you to borrow loans sometimes hiding certain terms of the loans but they can be a bother when it comes to collection of their loans. For this reason, it is advisable to borrow loans only when it is necessary and directed to the purposes they are borrowed.

How can you prevent needing a loan?

There are various reasons for wanting to borrow a loan and so there can be no straight forward answer as to how one can avoid needing a loan. It must be known that it is not the poor who can fact, the ability to pay is one of the factors banks and other financial institutions consider when lending money. To be a little considerate, it can be said that financial independence is the solution to borrowing loans. More succinctly, you can avoid certain types of loans that can cause you serious financial stress. Loan consolidation is one of the ways you can avoid pilling loans that eat into your ability to meet other financial obligations. Before plunging into buying a loan facility, you need to consider asking your financial and investment advisor for advice on whether such a move would be sustainable. Many a times, people borrow money to finance needs that will have no returns in future, which renders them

Can chartered accountants help you avoid needing a loan?

Accountants play a critical role in preparing books of accounts and assessing the liquidity of firms as well as individuals. But their role does not stop at dealing with books of accounts. Instead, they have the capacity to work on a lot of your financial issues, including revising your tax returns to reduce the overall tax cost through identifying non-tax items that may have been ignored in calculating the annual tax. Accountants also understand the financial regimes and are in a position to forecast the future of the banking and lending sector, which could offer individuals and organizations with insights into the future.