When to Consider Borrowing from a Money Lender? Responsible Borrowing
Though borrowing from a money lender might be inevitable, significantly when your financial responsibilities exceed your revenues, you should always be keen to borrow responsibly. Usually, aimless borrowing may lead to a debt trap, which is challenging to get out of.
This article, therefore, discusses in detail when to consider borrowing from a moneylender and when it may not be worth considering. You should know the pros and cons of money-lending services to help you decide whether to borrow.
Who is a Moneylender?
A money lender lends out loans, most likely at high interest and for short payback periods. Conspicuously, they provide personal loans whose payment period is flexible and, therefore, less risky to the lender and perhaps offered at a lower interest rate.
Primarily, people with poor credit or those who do not qualify to get a loan from a financial institution, such as banks, tend to get loans from money lenders.
When to Approach a Licensed Money Lender?
There are certain instances when applying to a money lender may be viable. Some of these instances include:
1. Sudden Monetary Crises
You can seek help from the money lender when you need quick cash in case of a sudden financial emergency, such as a sudden medical emergency when your car needs urgent repairs or an instance of sudden job loss. In that case, you must have a clear plan for how you intend to repay within the agreed terms and conditions to avoid attracting legal suits or penalties.
2. When you have Low Credit Score
People with poor credit scores or who are self-employed are generally not eligible to access loans from banks and unions in a particular period. A money lender, therefore, may be more considerate when dealing with credit; hence, people with inadequate access to credit may end up falling into their hands.
3. Short Term Financial Needs
It follows that money lenders are suited for short-term financial needs. The moment you need only a trifling sum of money and for a concise duration, you can get a quick fix from a money lender, provided you can repay them within the agreed time frame.
Advantages of Borrowing from Money Lenders
Money lenders have a few advantages, such as:
Ease of Access: Borrowing from money lenders allows you to access cash quickly, sometimes in a day or two.
Less Documentation: An application for funds from most moneylenders is simple, requiring minimal documentation.
Flexibility: Moneylenders may also provide you with the choice of toggling over from one repayment scheme to another that you find more suitable, keeping your financial situation in mind.
Disadvantages of Borrowing from Moneylenders
Wherever moneylenders have so many conveniences, they also have some significant shortcomings:
High Interest Rates: Moneylenders charge higher rates than their conventional financial organization counterparts, like banks.
Short Repayment Terms: Money lender loans provide a very short time to begin paying back the loaned amount, so one must feel more pressed to get the money back as soon as possible.
Risk of Debt Traps: In case of failure to pay off a debt in time, extra fees and additional penalties are charged, which might finally entangle a person in the web of debts.
Risk of Predatory Lending: Some money lenders are guilty of predatory lending, such as excessive charges or harassment for debt recovery.
How to Borrow Responsibly from a Moneylender
If you need to borrow from a moneylender, do it responsibly. Some of the tips that will enable you to borrow responsibly include;
Borrow Just What You Need: Only borrow what you need and what you can afford to repay within the shortest time possible.
Know Terms: Understand the loan agreement and get informed about interest rates, terms of repaying, and fees.
Chart an exact repayment plan: You can chalk out a realistic budget and ensure that you have a precise plan of repayment to make the loan with no or minimal delay.
Consider All Available Alternatives: Consider every probable way before selecting a money lender.
Beware of Predatory Practices: Do your background research on the money lender. Beware of anything that suggests predatory lending.
Conclusion
The services of a moneylender come in handy at times of financial desperation. But, you are bound to be cautious while approaching money lenders for a loan and use their money lending services only when it is the last resort for your safety.
Lastly, it conveniently reduces some of the risks associated with money lenders by carefully understanding the pros and cons of using them, ensuring no alternative to borrowing, and utilizing responsible borrowing parameters
