Banks have become very aggressive with marketing loans specifically to salaried employees who are soft targets for the practice. Loans are good per say and a vital tool to boost your investment plans if put to good use.
Banks have partnered with various service providers to make sure you have that dream car you have always desired to have, To have your dream house through mortgages and very lately wedding loans and school fees loans have been introduced among others.
Before the economic melt down, a loan deal could be struck by a phone call on looking at the history of your account but this has slightly changed because a top up of your loan could require you to sign fresh papers before it is approved.
Assuming you have got a loan of 12,000,000/- which should be able to get you a 50*100 decimal piece of land in Mukono plus construction of a two bed roomed house to window level, this will be considered a good spend for this particular loan and within one month of getting that loan, all that should be in place if that was the purpose for the loan.
However here is where very many borrowers get trapped. It is termed as a "Top Up". In the above example if the 12,000,000/- is going to be serviced within a period of 24 months or two years and yet you spent it within two weeks of getting the loan, sooner than later you will notice the recoveries biting.
Within 6 months you may want to go back but the bank will assure you that you need to at least service the loan for a period of one year before you qualify for a top up. After one year you can hardly resist the top up because the gap that was created by this loan has heavily impacted on your operations.
Supposing your loan balance is 6,000,000/- and you want a top up, these bankers will tell you that we have to buy off the old balance which is 6,000,000/- and then give you the difference of 6,000,000/- to make a total of 12,000,000/-. You will continue paying like you got 12,000,000/- yet in actual sense you got 6,000,000/- less processing fees and other charges. In most cases you might even have nothing to put on the house which has been at window level for the last 12 months.
In conclusion loans are good and highly recommended but there is need to work out a plan of getting out of them as opposed to being hooked in debt because the rat race syndrome will come into play. Otherwise the benefits are greater if you service the loan to completion as compared to getting top ups.