George Obwali (not real names) that could influence your decision.  

Mwotta: You should only borrow money if the return on investment is higher than the rate of interest. It does not make sense to get a salary loan at a high rate of interest and remain within the same income bracket.  Examine your lifestyle and live within your means.  It has taken me six years to complete my house; and, I have done so without acquiring any loan.

Obwali: But why postpone consumption?  If you are strong, employed and physically well, why not go for a salary loan?  Loans are good because they address is the issues of ‘consumption now’.

I have a friend who finished building his house last year by using salary loan and now he has just acquired a car.  The way things are you just cannot do without loans, especially if you are employed.

There are divergent views about loans and salary loans in particular, but a close scrutiny indicates that most views are largely based on Uganda’s financial history.  Memories of yesteryears, when many people lost property under NPART (Non-performing asset recovery trust) are still fresh. 

To some the lesson learnt was that loans can only lead you trouble.  Yet times have changed with various financial products and services in the market.  Today, for instance, you do not necessarily need collateral to secure a loan; and, if you are employed you do not even need to go to the bank. Banks send marketing executives to your offices and homes, who will fill in all the paper work for you.

All you have to do is to request your employer to provide you with a letter of introduction and at least three pay-slips.  Your employer has no obligation in case you default on the loan, but he helps the bank know what your net salary (that is your take home: gloss minus taxes).  This is because, in most cases, the maximum amount you can borrow is your net salary times 15. Some financial institutions go a step further:  they buy all your previous existing loans from other financial institutions.

However, although acquiring a salary loan is not complicated, there are several things you have to consider.  Shop around to make sure that you get the best deal because some banks have better conditions.  You need to put in a lot of time and research before deciding where to borrow. You have to find out the pricing and repayment model.  If you feel the marketing executive is not competent to answer all your queries seek a different opinion.

You have to be aware, for instance, that some contracts mandate the bank to revise the repayment terms without your consent.
Before signing the agreement, ensure that your monthly repayment amount is less than 50 percent of your monthly take home salary.  Establish what happens in case of failure to pay as a result of unemployment due to termination or even sickness.  If you are good at debt management, find out whether it is possible to repay the debt ahead of schedule.


The writer is Managing Editor, www.myfinance.co.ug

This e-mail address is being protected from spambots. You need JavaScript enabled to view it This e-mail address is being protected from spam bots, you need JavaScript enabled to view it