Welcome to SBL013: our weekly blog post where we address issues affecting you and your business — especially as it relates to cash and finances.
This week, we are writing on an issue many take for granted — paying back loans on time. People and businesses take loans on time, and think there are no consequences for delaying repayment, or just vanishing with borrowed funds: how wrong they are!
So this is how it works. All banks and most financial institutions (including Sycamore), report to credit bureaux. The job of a credit bureau is to keep records of loans taken by everyone (people and businesses) in a financial system. The information includes but not limited to
- The amount of the loan obtained
- The tenor of the loan
- The periodic instalment
- The financial institution the loan was obtained from
- The number of days the borrower has defaulted (if any)
- The top credit bureaux in Nigeria are First Central, CRC and CreditRegistry
With all this information being at the fingertips of all financial institutions, here are the top reasons you should pay back your loans on time:
1. To have access to future loans
One of the first things a lender does when you apply for a loan is to check if you have any outstanding loan obligations. How do they do this? By checking with any one of the credit bureaux of course. Now you will not be declined if you have an ongoing loan. The main questions are heavily indebted are you, and how responsible have you been towards servicing your loan repayments? I suspect you would not want to grant a personal loan to someone who has not paid the last 10 people he borrowed from, would you?
2. For employment and contracts
Do you know some employers run credit checks before granting you employment? It is true. No company wants to employ a person who is excessively indebted, as the liability creates an incentive for the person to misappropriate the organisation’s resources. Same also applies before some contracts are awarded, to ensure that the contractor does not use funds for the project to settle the debt. Some landlords check prospective tenants out too.
3. Regulatory or legal requirements
In some instances, regulatory bodies may give a directive that your credit report be provided, or a court order may mandate it. Your credit report (which is a history of your loan performance), gives an insight into your character, which comes quite handy in a lot of court cases.
Beyond the reasons listed above, servicing debt obligations in a timely fashion helps to sustain a strong relationship with whoever the lender is. A strong relationship is undoubtedly one of the best forms of social capital you can have in your business and personal life.
Why else do you think you need to pay your loans on time? Please let us know in the comments.