In a normal economy, the supply of money will always be less than the demand. This means that every person will always be subjected to less money than what he wants to spend. If people have more money than spending, an economy is subjected to inflation which is a rapid increase of prices of commodities and services. The balance between the demand and supply of money must be maintained at equilibrium. However, this does not mean that people should not invest in projects that they cannot finance by themselves.
An economy provides for people to take up a loan to meet obligations that need more money than what they have as the disposable income. The payment is then spread over a longperiod of time. Loans help people undertake an expensive project that they cannot be met by themselves. Before taking a loan research on financing institution. This
is tips on how to make an informed loan decision
Type of institution to borrow from
Depending on the need and the level of income, several bodies are always willing to give out loans. There are businesses whose main services is to give out loans to the public and organizations. They make profits from the interest and the cost of loans borrowed. Such institutions include banks, micro-financing, Sacco and trade unions, and online loan companies. A bank is the best loan provider.
It givesout loans to its customer without biases. The amount of loan is determined by the amount of saving and the credit rating of the individual. Microfinance organizations give a loan to support small-scale businesses and projects. The loan limit is determined by the saving and the level of the business. These loans are very cheap. Sacco and trade unions give a loan to their members. The amount of saving is multiplied by three times to get the loan limit. These loans don’t require collateral and attract very little interest.
The recent development in the loan industries are the online loan services. They are companies that give loans to the public on their ability to pay the loan. There are no limits, the more you repay your loan in time the more the loan limit. These loans are the most expensive. There are however appropriate for unemployed people as they don’t require any collateral or grantees.
Amount of loan and the repayment period
Finally, consider the amount of money you want to borrow and the repayment period. The repayment period will determine the amount of principal and interest to pay. The principle is the amount of loan to be repaid back; interest is the cost of a loan.
They are paid together at maturity. Consider whether your income can sustain the payment of the two. If the amount of income cannot repay the loan,consider cutting the amount of money you intend to borrow. Always remember that no matter how long the loan period is the more interest you pay. The payment period should coincide with the salary payment period.