5 mistakes Papua New Guineans make when applying for a personal loan

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fincorpWhen it comes to getting a personal loan from a bank or financial institution, many Papua New Guineans give much thought about their obligations, the terms and conditions of the loan and generally what they’re risking.

The thought of getting money and paying for the whatever item they desire overrides their ability to think more carefully about the benefits and costs of obtaining a loan.  In most cases, these Papua New Guineans who rushed to get the loan struggle to meet repayments in the long term.

  1. Dressing up their figures

When it comes to providing the banks with their income and expenses, many applicants tend to make the numbers look favourable so that they can get the loan. But essentially, what they’re doing is not only lying to the bank and most importantly themselves.  Firstly, dressing up figures is quite simply illegal.  The bank usually asks you to declare that what you have provided is true and correct.  Sometimes the bank might not see the discrepancies or sometimes they may but will still approve your loan because they are comfortable that you are able to repay.  But as time goes and the budget starts getting tighter and tighter, the truth usually comes out and you start feeling the pinch.

Be honest when supplying information to the bank.  It could come back to haunt you.

  1. Not understanding the basic loan terms

For many, explaining the meaning of interest rate or loan term seems foreign to them. They do not make an effort to understand them and better how it applies to their loan arrangement.  Many times, we are overwhelmed by the money we do not understand the important conditions that come with it and how they affect our obligations to repay.

If you ever consider a loan, educate yourself about the meaning of interest rates, loan terms, bank fees.  You must understand what you’re getting yourself into.

  1. They do not look around for other opportunities

There is a misconception that your chances are slim if you apply for a loan with a bank you do not bank with. Get this straight – banks and financial institutions are there to make money. They are there to give out loans because ultimately that is how they make money.

So if you are considering a loan, look at what options are there with the bank you bank with and others. If you understand basic loan terms, you can work out which ones are favourable and cheaper!

  1. They do not understand the difference between a secured and unsecured loan

For a secured loan, you will need to provide some form of security that is acceptable to the bank.  For an unsecured loan, there is no security.  The major difference between these two other than the security difference is the cost of the loan.  The interest rate for an unsecured loan is much greater than the rate of a secured loan.  Why do Papua New Guineans opt for unsecured loans at a higher price when they may be eligible for a loan for the same amount at a cheaper rate?

Sometimes, Papua New Guineans are just too vulnerable that they disregard the commercial common sense of it all.  It’s tough, but if we want to get out of a cycle of debt and borrow responsibly, we have to think carefully about the benefits and costs and apply common sense!

  1. They accept what the bank officer tells them but do not think about other options or make a counter offer

Do you have to believe every single thing the bank officer says?  For a start, he’s serving the interest of the bank – not you!  So it might be of help to listen to the bank officer, taken it all in and then think over it taking into account your own needs and your own circumstances.  At the end of the day, you are taking the risk so it pays to understand what the officer tells you and consider it from your own perspective too.  Again, understanding the basics of the loan, the financial terms and the risks before you will help you see the big picture now and during the repayment of the loan.

Most importantly, if you don’t understand some or any of the terms – ask!