WHY CALCULATING THE INTEREST RATE IS IMPORTANT WHEN BORROWING

 In my journey as a financial literacy trainer I have had a privilege of interacting with countless individuals and we have discussed about financial matters. This has given me an opportunity to learn the importance of preparation when it comes to acquiring a loan. In financial matters every person is wise with their experience but then there is always a better way in every dimension of life.

When it comes to borrowing I have realized that clients place more emphasis on the physical cash than the process of acquiring a loan. Just like adequate attention is given to planning when putting up a storied structure in the same way when acquiring a loan it is important the clients are well prepared. One of a glaringly signals of a poor loan appraisal is when a client is not adequately trained about the interest rate and other terms and conditions. Since a loan is meant to help a client to progress it is prudent that any financial institution takes time to train the client about the cost of a loan so that they can make an informed financial decision. 

A loan costs money and therefore a client should have it at the back of their mind that they will have to pay back the bank money( principal) and the interest charged on the loan. It is also important to note that a loan is an agreement between the lender and the borrower and each party has an obligation. When a borrower defaults on paying the loan it increases the costs on part of the lender to recover their money and also it has the potential to severe the relationship between the 2 parties.

It is a very important discipline for the borrower to make research about the institution where they are borrowing from and also to confidently ask for calculation of the interest rate. There have been cases where clients have paid more than they anticipated simply because they did not take time to understand the terms and conditions of the loan. Others have lost their valuable property because of the high borrowing costs.

Understanding the interest rate and the general terms and conditions of the loan enables the client to practice financial discipline knowing that it is costly for him or her when they default on the loan. A good borrowing population is an asset to the economy and it build a sound financial system where every body benefits.

For individual and corporate financial literacy training contact:

Coach Phillip Kiryowa 

Personal Finance Coach (CPC)

Certified Master Trainer, Bank of Uganda 

Founder, Advanced Empowerment Link

0752615916

For Financial Freedom and Sustainable Enterprises

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