What should I consider in taking out a loan (Dagbani)
Myriam Oh hi, Annette! What's new?
Annette Hi Myriam. Well, soon I plan to take out my first loan, in my own name!
Myriam Oh really? What are you going to use the loan for?
Annette Well, maybe a few things... Since Kingsley is buying a motorbike our money is very limited. But I need to buy some new cleaning supplies for my work. I would also like to buy a small refrigerator for our house. Also, my brother who is getting married asked me to send him some money to help pay for wedding costs...
Myriam I see. Those are a lot of ideas. I recommend you make a specific plan before taking a loan. If you're not careful, you won't be able to pay it back, and you'll become stuck in debt. Things you own could be taken to pay down what you owe and you would really struggle to get a loan again.
Annette Okay, Myriam. I will make a plan before taking the loan. For the cleaning supplies, I will be able to earn repayment money through the jobs I get.
Myriam Yes, that is true. And it will help you make more money, which can be a good reason to take a loan. What lender will you use?
Annette You know Samuel, who blasts his loud music on the street? He said since I don't have a credit history, no bank will lend to me. But he can loan me whatever I want.
Myriam Be careful, Annette. Borrowing from someone like Samuel can have risks. An "informal" lender like this does not follow the laws around fair and safe lending. If you cannot pay him back, he may not act legally to get his money from you. Plus, what interest did he say he would charge you?
Annette He said we would discuss it when I decide on the amount.
Myriam I expect a formal loan, like from an established microfinance institution, will cost you less; formal lenders are not allowed to charge over a certain rate. While it is true that they might not be willing to loan you as much since you don't have a history of repaying loans, you may still be able to get a small loan. And then when you pay that back, they may be willing to give you better terms. Why don't you try?
Annette Okay, I will ask if they would lend to me and what the interest rate would be.
Myriam Good. As well as the rate, you may wish to ask what your installment payments would be - their amount and when they would be due. And ask if there are any other fees. Take documents to show your identity and address, as well as any financial accounts you have and proof of ownership of anything valuable you own...
Annette Ay... I don't have much. I don't think they will lend to me, Myriam.
Myriam Even if they don't, you will learn more infomation and know what you'll need in the future. Remember, you can ask our group for a loan. The loan amount will be small, but I think it may be a good place for you to start; you could build some experience paying off a loan on time.
Annette Hm... I don't think those ladies will approve a loan for my brother's wedding.
Myriam You're right, I would not support that loan.
Annette Hey, Myriam!
Myriam I want you to succeed! I only support loans when the borrower has a good plan to pay it back - or if it is an emergency.
Annette If you cared about fashion, I could convince you that my brother getting married in his current clothes would be an emergency haha...
Myriam Tsk tsk Annette, don't be silly.