Are Consumer Credit Facilities Good for Your Financial Health?
By Acceler8now.com Investment Education Team
6th September, 2007
Once, the cry was about the lack of consumer credit in our economy, which meant people could only buy and enjoy those good things of life - household gadgets, cars, computers, etc - if only they saved enough money to acquire them. Putting a lot of money together has never been easy for anybody, especially people on salary, which meant that most people had a lot of difficulty owning the things they loved to equip themselves with. Not anymore. Today, you'd probably rather have some difficulty choosing which consumer finance facility type to take or what bank to approach. It's never been easier.
A WIDE RANGE OF FACILITY OPTIONS
Nigerian banks currently offer consumer funding for various categories of personal assets that an individual may want to acquire. Credit can be taken, from most banks, to buy the items you need to furnish your house, including all the fancy gadgets that you care to own. So, you don't have to dream about that plasma TV or that giant deep freezer or the leather chairs, anymore. They can all be yours and you simply pay over a convenient period. That elegant car, too, can easily be yours now, and you don't have to sweat too much to own it. The banks can finance the purchase for you and spread repayment over a number of years. The beauty of it all: you don't need the C of O of any property as security to access a consumer facility. The assets bought serve as security for themselves. A bank will possibly just extract a commitment from your employer to deduct the repayment and remit to it. When that wouldn't go, just the guarantee of some of your colleagues may be all that you have to obtain. As it stands today, you can own most things you could dream to have, because there are ready financiers, in banks.
Getting to use one's salary in advance has also become such easy job. Time was, when you had to plead and plead with your employer to advance you part of your salary. You don't need that hassle anymore. The Oceanic PASS and other similar products from banks will simply let you take and use part of your salary, when you need it in advance. So a health emergency that would have left you traumatised and going cap-in-hand to friends and neighbours doesn't have to disorganise you any more. Draw on your future salary, using a bank salary advance facility. Some banks are also already providing credit cards that even give you more flexibility in meeting your spending needs. So, as it is, relatively easy-to-secure consumer credit is finally here.
CREDIT IS GOOD AND BAD
While having the flexibility to access funding for your spending needs is a good development - it takes the sweat off living - you must be conscious of the capacity of debt to throw you into more anguish. There are two primary areas of concern you must not ignore:
- the cost of borrowing is still high in our financial market, meaning that the acquisition could cost you much more than you really realise. By the time you have built in the interest cost, management, quarterly and other kinds of fees into your purchase cost, you could end up with double the original cost of the product. Unbridled accessing of credit of this type could severely eat into your pocket, ultimately. What that simply means is that your finances suffer, leaving you financially weaker than you ought to be. Targeting a saving plan for that acquisition and deferring the process till you've built up the required funding through a fractional saving devoted to it, might be a more healthy approach.
- secondly, there are personal finance management professionals who will question the wisdom in borrowing for consumer spending. Incurring interest and other costs on credit that funds an investment that eventually returns more than the cost of the borrowing is understandable. For instance, borrowing to fund share purchases. Funding a car that means more expenditure in running costs, social expectations, etc, on the other hand, may sound misplaced, to such experts.
 TREAD WITH CARE
This is not to say that you shouldn't take advantage of the opportunity you have to gain access to the good things of life. After all, that is part of why you are up on your feet everyday to earn a living. Access to credit is good for the economy and could save you a lot of personal anxiety as to how to provide assets you need to make life more meaningful. Credit can also easily lead to financial problems, including over-bloated credit file, misapplication of finances and financial crises resulting from a heavy repayment burden. So, think twice about it before you overload yourself with credit that will sap your financial strength.
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